Treasury poised to sell notes at record low amid stimulus wagers

July 11 (Bloomberg) -- Treasury yields were at almost all-time lows as the U.S. prepared to sell $21 billion of 10-year securities at a record auction rate amid speculation the Federal Reserve may announce a new round of monetary stimulus.

Yields have dropped over the past week amid worse-than-forecast U.S. job data and concern Europe’s debt crisis is intensifying. The Fed will release the minutes of its June meeting today that may indicate policy makers will undertake a third round of asset purchases to stimulate the economy under the policy known as quantitative easing.

“There continues to be demand even with the stark lows because of the issues in Europe and with the economy -- the need is still there,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “There’s a good chance of us getting quantitative easing in August. It seems as if the market is anticipating something coming.”

The U.S. 10-year yield was little changed at 1.50 percent at 10:43 a.m. New York time, according to Bloomberg Bond Trader prices. It touched 1.49 percent, the least since June 4, after reaching an all-time low of 1.44 percent on June 1. The 1.75 percent security due in May 2022 traded at 102 9/32.

Benchmark yields had climbed from a five-week low after the term premium, a model created by the Federal Reserve that includes expectations for interest rates, growth and inflation, showed Treasuries are the most expensive ever. The gauge fell to a record negative 0.96 percent yesterday.

A Bloomberg survey of economists projects the median yield on the 10-year note will rise to 1.9 percent by year-end, down 0.2 percent from the previous week’s survey. The low forecast is 1.4 percent and the high is 3.3 percent.

‘Relatively Cheap’

The 10-year notes scheduled for sale today yielded 1.53 percent in pre-auction trading, compared with the record low of 1.622 percent set at the previous auction on June 13.

Investors bid for 3.06 times the amount of debt offered last month, versus the average of 3.07 for the past 10 auctions.

Indirect bidders, the investor group that includes foreign central banks, bought 42 percent of the debt, the most this year. Direct bidders, non-primary dealers buying for their own accounts, purchased 20.8 percent, the highest since August.

“The auction provides a good liquidity point for foreign and domestic investors to allocate to Treasuries, which crazily are relatively cheap compared to other safe-haven, developed- world, fixed-income markets,” William O’Donnell, head U.S. government-bond strategist in Stamford, Connecticut, at RBS Securities Inc., one of 21 primary dealers required to bid at Treasury auctions, wrote in a note to clients. “Treasuries are likely to remain locked in lower rate ranges as U.S. (and global) growth disappoints.”

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