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.”
Investors have poured into the world’s safest government securities amid Europe’s debt crisis. Germany’s borrowing costs dropped to the least on record today at a sale of 4.15 billion euros ($5.1 billion) of 10-year debt. The nation sold the securities at a yield of 1.31 percent, down from 1.52 percent at a June 13 sale, according to a statement from the Bundesbank.
While U.S. economic growth slowed to a 1.9 percent annual rate in the first quarter, it will quicken to 2.5 percent in the fourth, according to Bloomberg surveys of financial companies.
Treasuries rose yesterday as concern Europe’s financial woes are slowing U.S. growth led to higher-than-average demand at a $32 billion sale of three-year notes.
The securities attracted bids for 3.52 times the amount offered, compared with the average of 3.45 for the previous 10 sales. A $13 billion 30-year auction tomorrow will complete this week’s supply.
‘Ongoing Muddling’
A U.S. report on July 6 showed the economy added 80,000 jobs in June, less than the 100,000 projected by a Bloomberg News survey of economists.
Treasuries have returned 2.5 percent this year, according to Bank of America Merrill Lynch indexes. A gauge of U.S. investment-grade and high-yield company bonds gained 6.5 percent, the data show.
“Yields look set to retest the early-June lows,” said Peter Jolly, head of market research at National Australia Bank Ltd. in Sydney. “There’s an ongoing muddling in Europe, and weakening global growth is being priced into Treasuries.”
The Fed has pledged to keep its benchmark interest rate near zero at least through late 2014.
U.S. policy makers on June 20 announced a $267 billion expansion of the Fed’s Operation Twist program to put downward pressure on long-term interest rates. The central bank plans to buy as much as $5 billion of notes due from July 2018 to May 2020 today as part of the program, according to the Fed Bank of New York website.
The Fed has purchased $2.3 billion of mortgage and Treasury debt in two separate rounds of asset purchases intended to stimulate the economy, known as quantitative easing, or QE. While policy makers refrained from introducing a third round of purchases last month, Chairman Ben S. Bernanke indicated it remains an option.
More dovish minutes and more sluggish data might increase the market’s perception of the likelihood of more stimulus, Mikael Nilsson, an analyst at Barclays Capital in London, wrote in a note to clients.
Goldman Sachs Group Inc. and Bank of America Corp. said earlier this week the Fed will probably extend its pledge to keep its benchmark interest rate at almost zero until the middle of 2015. The central bank, which has said it will hold the rate low through at least late 2014, will amend its so-called forward guidance before deciding on a new round of bond purchases, according to the companies. The policy-setting Federal Open Market Committee are scheduled to meet Aug. 1.
