TREASURIES-Prices fall on 3-year auction disappointment

* Three-year note auction draws disappointing demand

* Fed at Sept policy meeting mulled eventual QE

* 2-yr, 5-yr, 7-yr note yields set record lows
(Updates prices)

By Chris Reese

NEW YORK, Oct 12 (BestGrowthStock) – U.S. Treasury debt prices
eased on Tuesday after lackluster demand in an auction of
three-year notes spurred some worries over the potential
success of remaining debt auctions this week.

Losses were limited, however, as minutes from the Federal
Reserve’s last policy meeting maintained the notion that the
central bank will go ahead with another program of quantitative
easing in the near future that many expect will include an
expansion of Treasury debt purchases.

The government sale of $32 billion of three-year notes
early in the afternoon brought a high yield that was above
market expectations, indicating investors were unwilling to pay
for the notes at the current historically low yields.

“A terrible showing on the demand side in the three-year
auction,” said Thomas di Galoma, head of fixed income rates and
trading at Guggenheim Securities in New York.

Three-year notes (US3YT=RR: ) traded 3/32 lower in price to
yield 0.56 percent, up from 0.53 percent late on Friday, while
benchmark 10-year Treasury notes (US10YT=RR: ) traded 8/32 lower
to yield 2.43 percent, from 2.40 percent.

The Treasury will auction $21 billion of reopened 10-year
Treasury notes on Wednesday and $13 billion of reopened 30-year
bonds (US30YT=RR: ) on Thursday.

The Fed’s release of minutes from its Sept. 21 Federal Open
Market Committee meeting did little to change expectations of
further quantitative easing from the central bank, which many
expect to be announced as soon as the early November policy
meeting.

The minutes outlined that in September Fed policymakers
felt further monetary easing could be appropriate before long,
and that among possible approaches the focus was on buying
Treasuries. For details see [ID:nWALCLE6OH].

“(Fed officials) noted that slow growth in and of itself is
enough to warrant asset purchases and in this context the data
since the meeting has done little to suggest anything other
than near-term quantitative easing — the increasingly
consensus view calls for a Nov. 3 announcement,” said Ian
Lyngen, senior government bond strategist at CRT Capital Group
in Stamford, Connecticut.

Most primary dealers think the Fed will announce its second
round of easing measures directly following the Nov. 3 meeting,
a Reuters poll found on Friday. [FED/R]

The increased speculation of more Fed asset purchases has
recently supported Treasury debt prices and pushed yields down
to historic lows.

Indeed, the two-year Treasury note’s (US2YT=RR: ) yield
dipped to a record low of 0.34 percent on Tuesday. But the
two-year note pulled back in price to trade 1/32 lower with a
yield of 0.38 percent on Tuesday afternoon, from 0.36 percent
late on Friday.

Five-year (US5YT=RR: ) and seven-year (US7YT=RR: ) Treasury
note yields also briefly hit record lows on Tuesday.

The 30-year bond (US30YT=RR: ) traded 1-1/32 lower in price
to yield 3.81 percent, the highest yield in three weeks and up
from 3.75 percent late on Friday.
(Additional reporting by Emily Flitter; Editing by Dan
Grebler)

TREASURIES-Prices fall on 3-year auction disappointment