September 24, 2018 / 5:28 PM / in 25 days

UPDATE 1-Weakest demand, highest yield since 2008 at U.S. 2-year auction

(Adds details demand, bidder takedowns)

By Kate Duguid

NEW YORK, Sept 24 (Reuters) - The $37 billion in new supply of 2-year Treasury notes on Monday were sold at the highest yield at auction since June 2008 to the weakest demand since December 2008.

Demand was lackluster despite low prices, notching the yield on the 2-year note up to 2.817 percent on Monday after the Treasury Department sale. The high yield at auction was 2.829 percent, the highest since June 2008 at 2.922 percent, reflecting expectations the Federal Reserve will raise interest rates at this week’s meeting.

The 2-year yield is a gauge of market expectations of interest-rate hikes.

Primary dealers, who are responsible for absorbing any supply not bought by direct or indirect bidders, took 46.63 percent, the largest amount since December 2016.

Indirect bidders, who include fund managers and foreign central banks, took 39.96 percent of the supply, the lowest since May 2018, and lower than the 43.8 percent in August and the 12-month average of 44.69 percent. Direct bidders took 13.4 percent, lower than the 13.68 percent taken in August, and the lowest since February 2018.

The ratio of bids to the amount of 2-year debt offered - a measure of overall demand - was 2.44, last hit in December 2016, and the lowest since December 2008. It was far lower than 2.89 in August and the 12-month average of 2.82.

The offering was larger than the $36 billion auctioned in August. (Reporting by Kate Duguid; editing by Jonathan Oatis)

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