Sept. 9 (Bloomberg) -- Treasuries declined as the U.S. prepared to sell $20 billion of 10-year securities, the second of three auctions this week totaling $70 billion. Ten-year yields touched a seven-week low of 3.28 percent on Sept. 2. The Federal Reserve’s Beige Book business survey will give policy makers more reason to keep interest rates at a record low to spur growth, some traders speculated. The recent rally in Treasuries may have run its course and yields could be on the cusp of the next move higher, according to Citigroup Inc. “Fundamental conditions remain threatening and still weak,” said William O’Donnell, U.S. government bond strategist at RBS Securities Inc. in Stamford, Connecticut, one of 18 primary dealers required to bid at Treasury auctions. “It will be a reasonable auction because our market is cheaper to other sovereign markets and the mortgage market.” The yield on the 10-year note rose three basis points, or 0.03 percentage point, to 3.51 percent at 9:22 a.m. in New York, according to BGCantor Market Data. The 3.625 percent security due in August 2019 fell 1/4, or $2.50 per $1,000 face amount, to 100 29/32. Citigroup had forecast earlier that the 27-year bull market in fixed income ended in December 2008, according to a note from Chief Technical Analyst Tom Fitzpatrick released today. Inflation ‘Subdued’ It’s too early for the central bank to tighten credit, Fed Bank of Chicago President Charles Evans said. “As the economy continues to improve, and when we see rising inflation pressures, Fed policy will respond aggressively,” Evans said in the text of remarks to the Council on Foreign Relations in New York. “Having said this, the main threat to these outcomes would be if clear danger signals were ignored or if central bank independence were compromised.” Evans votes on monetary-policy decisions this year. The previous auction of 10-year notes on Aug. 12 drew a higher yield than dealers forecast, fueling speculation that demand at today’s sale will also fall short of expectations. Ten-year rates fell about 20 basis points since the previous sale of the securities. That auction attracted bids for 2.49 times the amount on offer, the lowest for a sale of the maturity since May, and drew a yield of 3.734 percent, compared with a forecast of 3.708 percent in a Bloomberg News survey. The 10-year note to be sold today yielded 3.52 percent in pre- auction trading. Supply Pressures “Supply pressures the U.S. long end,” Peter Jolly, head of market research for the investment-banking unit of National Australia Bank Ltd. in Sydney, wrote in a note to clients. “The sense is that long-end yields needed to push higher to make room for the $20 billion of 10-years to be sold.” The Treasury plans to sell $12 billion of 30-year bonds tomorrow. Ten-year yields climbed to 4 percent in June on concern record supply would overwhelm demand as the economy showed signs of recovering from the deepest recession since the 1930s. The Fed’s previous Beige Book, released on July 29, said most of the 12 regional banks detected a slower pace of economic decline in June and July. The latest version of the central bank’s survey is due at 2 p.m. Washington time. The U.S. economy will start to pull out of a recession by year end, helped by “remarkable growth” in productivity and a depletion of inventories, former Federal Reserve Chairman Alan Greenspan said. Pieces ‘Falling’ “A lot of pieces are falling into place for a fairly pronounced recovery not only in the U.S. but throughout the world,” Greenspan said at the Rodman & Renshaw Annual Global Investment Conference, in New York. While there are “still excess inventories in the system,” those should be worked off by the end of the year, he said. President Barack Obama pushed the nation’s marketable debt to an unprecedented $6.78 trillion in an effort to spur economic growth, support the financial system and service record deficits. The U.S. budget deficit is projected to increase to $1.85 trillion in the year ending Sept. 30, equivalent to 13 percent of the nation’s economy, according to the nonpartisan Congressional Budget Office. The U.S. doesn’t face any “downward rating pressure” in the next few years even as its balance sheet expands, Moody’s Investors Service said. “Almost all Aaa-rated sovereigns have been hit more severely by the global downturn than we expected earlier this year,” Moody’s said. “Nevertheless, all Aaa countries now have stable outlooks, indicating that we do not expect rating downgrades over the near term.” At least 17 economies, including the U.S. and the U.K., are rated Aaa, the top credit rating, by Moody’s. The spread between two- and ten-year notes stood at 2.55 percentage points today. Analysts in a Bloomberg survey forecast the difference in yield will remain little changed at 2.51 percentage points by year-end. The estimate puts a heavier weighting on more recent forecasts. A separate survey shows economists expect the U.S. economy to contract 2.6 percent this year. To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Anna Rascouet in London at arascouet@bloomberg.net.

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