October 13, 2010 / 3:52 PM / 9 years ago

TREASURIES-Bonds fall as 10-year sale gets lukewarm demand

* US $21 bln 10-yr note sale fetches 2nd lowest yield ever

* Ten-year auction yield a tad above traders expectations

* Profit-taking, stock gains add to pressure on bonds

* US 10-30-yr yield spread hovers at record wide (Updates market action, adds new quotes, changes byline)

By Richard Leong

NEW YORK, Oct 13 (Reuters) - U.S. Treasuries fell on Wednesday as lukewarm demand at a 10-year note auction overshadowed bets on the Federal Reserve engaging in a fresh round of bond purchases to stimulate the economy.

Profit-taking and reduced safety bids due to gains on Wall Street also exerted downward pressure on the U.S. government bond market, analysts and traders said.

The Treasury Department added $21 billion to a prior 10-year issue originally sold in August, part of this week’s $66 billion in coupon-bearing supply.

The 10-year followed a day after a disappointing $32 billion auction of three-year notes sent longer-dated yields to their highest in about three weeks.

The 10-year reopening fetched a yield of 2.475 percent, the second lowest ever at a 10-year note auction. But it produced a “tail” or a higher yield than traders had expected. For details, see [ID:nTAR000355]

“It was ok. It tailed a little,” Larry Milstein, head of agency and government trading at R.W. Pressprich & Co. in New York, said of the 10-year auction. “The market is still waiting for the Fed’s announcement on quantitative easing. That’s what is overhanging the market.”

In the open market, the 10-year Treasury note US10YT=RR last traded down 11/32 at 101-10/32 after touching a session low at 101-6/32. Its yield was last at 2.47 percent, up 4 basis points from late Tuesday.

The spread between 10-year and 30-year Treasuries held steady near its record wide of 138 basis points.

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