The US Treasury sold $32 billion in three-year notes at a record low yield of 0.50 percent in the first auction since the government had its debt cut from the top credit rating by Standard & Poor's on Friday.

The relatively shorter-dated notes were expected to see strong demand, as continuing uncertainty over debt contagion in the euro zone and a globally slowing economy boosts demand for safe-haven bonds.

A larger test will be when the government sells $24 billion in 10-year notes on Wednesday, and $16 billion in 30-year bonds on Thursday.

"Tens and bonds are going to be the tough issues," said Jason Rogan, director of US Treasury trading at Guggenheim Capital Markets in New York. "I think a lot of people were expecting the three-year auction to go well."

The debt auction may have also been helped by a strong bid by Japanese investors, after Japanese authorities intervened to stem the soaring yen, Rogan said.

Investors will now be focused on a Federal Reserve statement that will be released at about 2:15 p.m. (1815 GMT) for any signs the US central bank may consider resuming bond purchases to help the ailing economy.

Treasury prices fell on Tuesday as investors ventured back into riskier assets, looking for value after Monday's global sell-off in stocks, corporate bonds and industrial commodities.

"The bond market is reacting to the bounce-back in stocks," said Justin Hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago.

Benchmark 10-year Treasury notes were last down 12/32 in price to yield 2.35 percent, after falling as low 2.27 percent, the lowest rate since January 2009.

Copyright Reuters, 2011