July 9 (Bloomberg) -- Treasuries fell as the government’s $11 billion sale of 30-year bonds drew less demand than the previous sale of the securities, the final of four U.S. auctions within a week for the first time.

Yields on 10-year notes climbed from the seven-week lows reached yesterday, when investors seeking refuge from an economy whose recovery may take longer than expected submitted the most bids on record at a sale of the debt. The bid-to-cover ratio on today’s 30-year auction, which gauges demand by comparing total bids with the amount of securities offered, was 2.36, compared to 2.68 at the June offering.

“This is the supply drift,” said Chris Ahrens, the Stamford, Connecticut-based head of interest-rate strategy at UBS Securities LLC, one of the 17 primary dealers that bid on the sales. “Yesterday there was a little panic going on.”

The yield on the benchmark 10-year note rose 11 basis points, or 0.11 percentage point, to 3.41 percent at 4:39 p.m. in New York, according to BGCantor Market Data. The 3.125 percent security maturing in May 2019 fell 7/8, or $8.75 per $1,000 face amount, to 97 20/32. The yield fell yesterday the most on an intraday basis since March 18, when the Federal Reserve said it would buy U.S. debt to cap borrowing costs.

Indirect Bidders

The 30-year bond yield rose 10 basis points to 4.30 percent. The yield yesterday fell as much as 15 basis points, the most in over five weeks.

The bonds sold today yielded 4.303 percent, higher than the 4.292 percent average forecast of four bond-trading firms surveyed by Bloomberg News. The offering is the second reopening of the $14 billion 30-year bond auction on May 7. The $11 billion auction on June 11 drew a yield of 4.72 percent, which was the highest since August 2007. The bid-to-cover ratio has averaged 2.28 at the past 10 sales.

Indirect bidders, an investor class that includes foreign central banks, purchased 50.2 percent of the bonds, the most since February 2006. At the June sale, they bought 49 percent. The average for the past 10 sales is 29 percent.

Demand has been rising at the U.S. auctions, especially from indirect bidders. That class of investors purchased 43.9 percent of the 10-year notes offered yesterday, compared to 34.2 percent at the June sale of the securities. Indirect bidders bought 54 percent of the three-year notes sold on July 7, up from 43.8 percent in June.

‘Trend and Grind’

The levels of indirect bidders at recent auctions may have been affected by a rule change last month that eliminated a provision allowing some customer awards to be classified as dealer bids.

“What is really good is that we got the supply out of the way,” said Michael Franzese, head of government bond trading for Standard Chartered in New York. He spoke in a Bloomberg Television interview. “We are predicting that interest rates will trend and grind lower as we get through the summer.”

Yields on 10-year notes touched 4 percent on June 11 on concern the government’s borrowing would deluge demand as the economy showed evidence of emerging from its deepest recession in 50 years.

Since then, yields have fallen almost 60 basis points as reports suggest the recession has further to run. The Labor Department said last week that the unemployment rate rose to 9.5 percent, the highest since 1983.

‘Green Shoots Nonsense’

“The green shoots nonsense is being tossed aside and we’re approaching reality here,” said Maxwell Bublitz, who oversees $3.5 billion in fixed-income assets as the chief strategist at San Francisco-based SCM Advisors LLC. “We’ve had more buyers of risk-free income.”

Longer maturities have led the Treasury market lower this year as President Barack Obama borrows record amounts to stimulate the economy and service deficits. After more than doubling note and bond offerings to $963 billion in the first half, another $1.1 trillion may be sold by year-end, according to primary dealer Barclays Plc. The second-half sales would be more than the total amount of debt sold in all of 2008.

Thirty-year bonds handed investors a 21 percent loss so far in 2009, while two-year notes returned 0.6 percent, based on indexes compiled by Merrill Lynch & Co.

After a two-week lull in the auction schedule, the Treasury resumes sales on July 27 with a reopening of 20-year Treasury Inflation Protected Securities. Next are offerings of two-, five- and seven-year notes over three consecutive days beginning July 28. The last time the Treasury went two weeks without an auction of notes or bonds was the period beginning May 11.

‘Artificially Suppressed’

The Fed bought $2.999 billion of Treasuries today maturing between July 2010 and April 2011, part of its $300 billion, six- month program to reduce lending rates. The central bank has bought $200.722 billion in U.S. debt through the operations, which began March 25. Today’s purchase will be followed by four more over the next two weeks.

Falling Treasury yields have helped the central bank’s mission. The average 30-year mortgage rate dropped to 5.2 percent from 5.32 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. That’s the second consecutive weekly decline. The 15-year rate averaged 4.69 percent.

Yields on Treasuries are being artificially suppressed by the central bank; otherwise bonds would yield more than 10 percent, according to Lee Quaintance and Paul Brodsky of QB Asset Management in New York.

“There are powerful structural forces blocking any fundamental reconciliation of value,” Quaintance and Brodsky wrote. “These forces include bond markets comprised mostly of domestic and foreign investors with incentives that place them at odds with rational credit pricing, as well as central banks with unlimited spending capacity threatening, and being encouraged by all, to intervene when necessary to provide a ceiling on yields.”

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net; Dakin Campbell in New York at dcampbell27@bloomberg.net.

Last Updated: July 9, 2009 16:43 EDT