By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices rose Wednesday, pushing down yields on 2-year notes to a fresh all-time low, as investors around the world sought U.S. debt in response to the both Federal Reserve's new asset plan and its more dour outlook for the largest global economy.
The demand for Treasury debt is expected to bode well as the government sells 24 billion in 10-year notes later during the session.
Demand from overseas "has picked up as the risks of a double-dip recession and deflation grow," said strategist at CRT Capital Group.
Yields on 2-year notes (UST2YR 0.51, -0.02, -3.81%) fell 4 basis points to 0.50%, after touching 0.48% earlier in the session. Yields move inversely to prices; a basis point is 0.01%.
Yields on 10-year notes (UST10Y 2.72, -0.04, -1.59%) declined 4 basis points to 2.23%, probing further down to level not seen since April 2009.
The Treasury Department will accept bids on new 10-year debt until 1 p.m. Eastern time. See results of recent auctions.
The auction is likely to carry the lowest yield since February 2009, which came at 2.818%.
It's the smallest sale of new 10-year debt since August 2009.
"With 10-year yields having hit our long term target, we see the market establishing a new yield range at lower yields," they wrote in a note. "The market is presently seeking out the lower end of that rate range, while the upper end of the yield range is likely to be from 3.00% to 3.12%."
The government received good demand at Tuesday's sale of 3-year notes (UST3YR 0.76, +0.00, +0.13%) . It will end its auctions for the week with the sale of 30-year bonds (UST30Y 3.98, -0.03, -0.70%) on Thursday.
Treasurys held the line on gains after the government said the U.S. trade deficit widened to $49.9 billion in June, more than expected. Read about trade gap.
Late Tuesday, Federal policy makers ended their meeting on interest rates and the economy by saying it will reinvest proceeds from maturing mortgage debt back into the Treasurys market. Read about bonds, Fed on Tuesday.
"The net result is another structural buyer for the Treasury market that will serve to put in a bullish backstop for yields," strategists at CRT said.
The first tentative schedule of purchase operations will be published at 3 p.m. Eastern, the Federal Reserve Bank of New York said. See the New York Fed's statement.
