July 23, 2009 / 4:43 PM / 10 years ago

CORRECTED - UPDATE 1-U.S. to conduct record long-dated Treasury sales

(In paragraph 8, please read next week’s long-dated sales will begin on Monday, instead of will conclude on July 31)

* U.S. Treasury to auction $115 bln in long-dated debt

* Demand seen for bigger offerings but unclear on yields

* Treasury to also sell at least $90 bln T-bills (Adds quotes, background, byline)

By Richard Leong

NEW YORK, July 23 (Reuters) - The U.S. government is set to sell record amounts of long-dated Treasury securities next week in an effort to raise billions to fund its economic stimulus package and industry bailouts.

On Thursday, the Treasury Department said it will sell a combined $115 billion in longer-maturity regular and Treasury Inflation Protected Securities (TIPS), surpassing the weekly record of $104 billion set in June. [ID:nWEQ001238]

The auctions will raise about $93 billion in new money for the government, which has been expected to sell $2 trillion in new debt this fiscal year, according to analysts.

“It’s just a sign of increased borrowing needs,” said Michael Pond, Treasury strategist at Barclays Capital in New York, adding that it raises the prospects of increased borrowing at Treasury’s next quarterly refunding in August.

Next week’s larger-than-expected offerings of two-year, five-year and seven-year government notes spooked supply-weary investors, sending Treasury prices to session lows at midday.

Benchmark 10-year notes US10YT=RR were down 27/32 at 95-23/32 in price. Their yield ,which moves inversely to price, was 3.65 percent, up from 3.54 percent late on Wednesday.

The Treasury will sell $42 billion in two-year notes on Tuesday, up from $40 billion in June. It will offer $39 billion in five-year Treasuries on Wednesday, up from $37 billion in June and $28 billion in seven-year debt on Thursday, up from $27 billion last month.

Next week’s long-dated debt sales will begin on Monday with a $6 billion reopening of a 20-year TIPS issue.

The Treasury will also auction at least $90 billion in bills next week.

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Analysts had predicted increased offerings of five-year and seven-year notes. Instead, the Treasury raised the auction amounts on them and two-year debt, too — a move which has not happened since January.

Based on recent sales, these enlarged offerings should not have a tough time finding buyers, but it is unclear at what yields domestic and overseas investors are willing to buy them, analysts and traders said.

Treasury yields are lower, meaning the bonds are more expensive, than levels seen at sales of long-dated notes last month when they fetched robust bids, they said.

The last set of coupon auctions “went really well,” but “that certainly doesn’t guarantee that this one is going to,” said Mary Ann Hurley, vice president of fixed-income trading with D.A. Davidson & Co. in Seattle.

Moreover, the rise in U.S. debt issuance is coming at a time when the Federal Reserve is approaching its $300 billion limit on the Treasuries it intends to buy. The U.S. central bank’s Treasuries purchase is part of its quantitative easing policy aimed to hold down interest rate and to revive growth.

On Thursday, the Fed bought $3 billion in long-dated Treasuries, bringing its total to nearly $220 billion.

“The market will think about the end game when the Fed will no longer buy Treasuries,” Barclays’ Pond said. (Additional reporting by Burton Frierson; Editing by Leslie Adler)

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