Treasuries rose Monday as concern that Europe’s sovereign-debt crisis is far from a resolution pushed demand to a record high at an auction of $32 billion of U.S. three-year notes.

Longer-term U.S. debt gained earlier following two weeks of declines as investors sought refuge after Moody’s Investors Service said it will review ratings for all European Union countries because a summit last week failed to produce “decisive” measures to end the two-year-old crisis. Stocks dropped after a two-week rally.

“They have no place else to invest their money, with the uncertainty of the stock market and with what’s going on in Europe,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York.

Yields on U.S. 30-year bonds slid five basis points, or 0.05 percentage point, to 3.05 percent at 4:10 p.m. New York time, according to Bloomberg Bond Trader prices. The 3.125 percent securities due in November 2041 rose 1 1/32, or $10.31 per $1,000 face amount, to 101 3/8. The yields climbed eight basis points last week and 11 basis points the week before that.

The yield on the current three-year note slipped one basis point to 0.35 percent. Ten-year note yields declined four basis points to 2.02 percent, compared with the record low of 1.67 percent reached Sept. 23.

Debt Auctions

The Treasury is selling $78 billion in notes, bonds and inflation-indexed debt this week, and will announce on Thursday how much it will auction next week in three note offerings. It’s due to auction $21 billion of 10-year securities Tuesday, $13 billion in 30-year bonds Wednesday and $12 billion of five-year Treasury Inflation Protected Securities on Thursday.

At Monday’s auction, the bid-to-cover ratio, which gauges demand by comparing total bids with the amount of notes offered, was 3.62, the highest since at least 1993, when the government began releasing the data. It compared with an average of 3.24 for the past 10 sales.

The three-year securities drew a yield of 0.352 percent, versus a forecast of 0.359 percent in a Bloomberg News survey of 10 of the Federal Reserve’s 21 primary dealers, which are obliged to bid at U.S. debt sales. The record low at an auction of the maturities was 0.334 percent, reached in September.

Indirect bidders, an investor class that includes foreign central banks, bought 39.1 percent of the notes, compared with an average of 35.9 percent for the past 10 sales. Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 7 percent, versus an average of 12.2 percent at the past 10 auctions.

‘Great Start’

“It’s an excellent and great start to the auctions for this week and next,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., a primary dealer. “Money seems to be flowing from Europe, out of equities and into Treasuries.”

The Fed purchased $1.38 billion Monday in TIPS maturing from January 2019 to February 2041 as part of its $400 billion ‘Operation Twist’ program to replace shorter maturities with longer-term debt. The plan, announced in September, is an effort to cap borrowing costs. The Federal Open Market Committee holds its December policy meeting Tuesday.

Volatility in the Treasury market has increased this month. Bank of America Merrill Lynch’s MOVE index, which measures price swings in Treasuries based on prices of over-the-counter options maturing in two to 30 years, rose on Dec. 9 to 100 basis points, the highest level since Dec. 1. The average for 2011 is 94 basis points. The gauge reached a high of 117.8 basis points Aug. 8, three days after Standard & Poor’s cut the U.S. credit rating.

Italian, Spanish Bonds

Treasuries gained earlier as Italian and Spanish sovereign bonds led declines among higher-yielding European sovereign government debt.

The EU summit on the region’s debt crisis last week offered few new measures and doesn’t diminish the risk of credit-ranking revisions, Moody’s Investors Service said.

“In the absence of any decisive policy initiatives that stabilize credit market conditions effectively, our intention a announced in November is to revisit the level and dispersion of ratings during the first quarter of 2012,” Moody’s said in its Weekly Credit Outlook.

Fitch Ratings said today, without taking any action, that the meeting did little to ease pressure on Europe’s sovereign bond ratings.

‘No Real Decisiveness’

“There’s concern that there was no real decisiveness about Europe over the weekend,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “That’s caused selling in peripheral debt, and it’s leading to buying in Treasuries.”

Italian 10-year note yields climbed as much as 43 basis points today to 6.79 percent, the highest level since Dec. 1, before paring losses to 6.54 percent, up 20 basis points, as the ECB was said to buy the nation’s securities. Spanish 10-year yields rose as much as 32 basis points to 6.07 percent, also the highest level since Dec. 1, before slipping to 5.79 percent.

The S&P 500 Index of stocks dropped 1.5 percent.

Monday’s Treasury auction raised $3.2 billion in fresh cash, as more than $28.8 billion of maturing three-year securities are held by the public and the Fed, including $24.4 billion by the public and $4.4 billion by the central bank, according to Treasury data.

Three-year notes have returned 3.4 percent this year, compared with a gain of 8.9 percent for Treasuries overall, according to Bank of America Merrill Lynch indexes.