Treasuries fall as U.S. sells debt amid Fed stimulus speculation

June 12 (Bloomberg) -- Treasuries fell as the U.S. sold $32 billion of three-year notes and traders speculated that Federal Reserve officials may add to stimulus to keep the economic recovery from faltering.

The securities drew a yield of 0.387 percent, compared with a forecast of 0.383 percent in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers. Bonds had pared losses after Fitch Ratings cut the ratings of 18 Spanish banks, boosting the refuge appeal of U.S. government securities.

“The auction was good, but not great,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “They had buyer’s fatigue. You have a marketplace where yields are close to their lows and it’s possible Europe may get their act together.”

The yield on the current 3-year note rose three basis points, or 0.03 percentage point, to 0.385 percent, at 1:04 p.m. in New York, according to Bloomberg Bond Trader Prices. The yield on the benchmark 10-year note rose four basis points to 1.59 percent.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.65, compared with an average of 3.43 for the past 10 sales.

Bid Detail

Indirect bidders, an investor class that includes foreign central banks, purchased 27 percent of the notes, compared with an average of 37.6 percent for the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 12 percent of the notes at the sale, compared with an average of 9.8 percent for the past 10 auctions.

The Treasury is selling $66 billion in notes and bonds this week. It’s due to auction $21 billion of 10-year securities tomorrow and $13 billion of 30-year debt on June 14. The sales will raise $35.3 billion of new cash as maturing securities held by the public total $30.7 billion, according to the U.S. Treasury.

The central bank bought $2.3 trillion of bonds in two rounds of so-called quantitative easing, or QE, from December 2008 to June 2011 to cap borrowing costs and stimulate the economy.

The Fed purchased $1.876 billion of Treasuries due from February 2036 to August 2041 today under its program known as Operation Twist, which aims to replace holdings of shorter-term securities with longer-term bonds, according to the Fed Bank of New York’s website.

Fed Bank of Chicago President Charles Evans said he would support a variety of measures to generate faster job growth, underscoring his preference for more stimulus.

“I’ve been in favor of pretty much any accommodative policy I’ve heard about,” Evans, who doesn’t vote on the Federal Open Market Committee this year, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu.

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