That's not a good sign for the average American borrower.

The Government was forced to lift the yield on 10-year Treasury notes to 3.99 per cent to lure in buyers at an auction Wednesday.

That was the highest yield it's offered since last August, before it started bailing out the nation's financial industry.

In the end, the government still got plenty of buyers for its US$19 billion in 10-year notes. The ratio of bids to notes sold was decent at 2.66, and indirect bidding - a measure of foreign buying - was fairly robust at 34 per cent.

But the auction signaled to investors that financing the US financial bailout and economic stimulus packages is not going to come cheaply.

Already, some foreign govern-ments, including Russia, are talking about reducing their US debt holdings because of the weak dollar.

If demand for US debt keeps tumbling, that will mean even higher yields, or annual rates, on the debt.

Those yields are closely tied to rates on mortgages and other consumer loans.

The Mortgage Bankers Association said Wednesday that the average rate on a 30-year fixed-rate loan rose to 5.57 per cent last week, the highest level since November, from 5.25 per cent the previous week.

Kevin Giddis, managing director of fixed income at Morgan Keegan, said that yesterday's jump in market rates would translate to another rise in that 30-year fixed rate to about 5.75 per cent.

"That should concern everyone," Giddis said. The Fed "is having a hard time keeping mortgage rates where they need to be so people can buy inventory or refinance existing homes."

A Russian central bank official gave investors a scare Wednesday when he said his bank would reduce US Treasury holdings to invest instead in International Monetary Fund (IMF) notes.

Russia now holds about US$120 billion, or 30 per cent, of its hard currency reserves in US Treasurys and said it would redirect up to US$10 billion to the IMF.

Chinese and Brazilian officials said they are interested, too, in buying IMF bonds.

The announcements come just a week before China, Russia, Brazil and India gather for talks in Russia, where they are expected to discuss alternatives to the US dollar as the global reserve currency.

By late trading on Wednesday, the 10-year Treasury note fell 22/32 to 93 7/32.

Its yield was at 3.96 per cent, up from 3.89 per cent late Monday but down from its high of the day of 4.01 per cent.

- AP