Treasury Two-Year Notes May Yield 0.354% at Auction, Survey Says

The Treasury Department’s $33 billion sale of two-year notes may draw a yield of 0.354 percent, according to the average forecast in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers.

The securities, which mature in September 2015, yielded 0.36 percent in pre-auction trading. Bids are due by 1 p.m. New York time. Last month’s sale of the securities yielded 0.386 percent and the record auction low was 0.220 percent on July 24, 2012.

The size of today’s offering is the second straight $1 billion monthly cut in issuance, the most since October 2010. Before the reductions, the Treasury sold $35 billion at 34 straight sales of the notes. The securities peaked at $44 billion from October 2009 through April 2010.

The Aug. 27 offering’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 3.21, up from 3.08 the previous month. The average ratio for the past 10 auctions was 3.4.

Indirect bidders, a class of investors that includes foreign central banks, bought 19.3 percent of the notes at the August sale. The average for the past 10 auctions is 24.1 percent.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 26.1 percent of the notes at the last sale, compared with an average of 22.6 percent at the past 10 sales.

Two-year notes have gained 0.2 percent this year, compared with a decline of 2.9 percent by Treasuries overall, according to Bank of America Merrill Lynch indexes. The two-year securities returned 0.3 percent in 2012, while Treasuries overall rose 2.2 percent.

Today’s offering is the first of three note auctions this week totaling $97 billion. The government will sell $35 billion in five-year debt tomorrow and $29 billion in seven-year securities on Sept. 26

The sales this week, along with last week’s $13 billion 10-year TIPS auction, will raise $47.6 billion of new cash, as maturing securities held by the public total $62.3 billion, according to the Treasury.

The Fed’s primary dealers trade government securities with the central bank and are obligated to bid in Treasury auctions.

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