I Get By With Alittle Help From My Friends....
Would you like to react to this message? Create an account in a few clicks or log in to continue.
I Get By With Alittle Help From My Friends....

Dinar Outcast


You are not connected. Please login or register

Treasury Five-Year Yield Falls to Record Low on Federal Reserve Strategy

Go down  Message [Page 1 of 1]

Panhead

Panhead
Admin

Treasury Five-Year Yield Falls to Record Low on Federal Reserve Strategy
Q
By John Detrixhe and Cordell Eddings - Jan 27, 2012 9:00 PM PT



Treasury five-year note yields fell to the lowest level ever after Federal Reserve officials unexpectedly said their benchmark interest rate will stay low until at least late 2014.

Yields on the securities set three consecutive records after Fed Chairman Ben S. Bernanke said Jan. 25 that the central bank is considering additional asset purchases to boost growth. U.S. government debt rose for a third day yesterday as a report showed the U.S. economy grew at a slower-than-forecast 2.8% annual pace in the fourth quarter. The Labor Department is expected to report on Feb. 3 that unemployment remained at 8.5 percent this month.

“Preparation for, and reaction to, the Fed’s low-rate commitment was the dominant trading trend of the week,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC, said in a telephone interview.

The five-year note yield decreased 14 basis points, or 0.14 percentage point, to 0.75 percent after dipping below 0.74 for the first time, according to Bloomberg Bond Trader prices.

Yields on benchmark 10-year notes fell 13 basis points to 1.89 percent after climbing to as high as 1.97 percent.

Treasuries have lost 0.2 percent this year through Jan. 26, compared with a 0.3 percent decline at the same point last year, according to Bank of America Merrill Lynch indexes. Europe’s sovereign-debt crisis and the threat of a U.S. economic slowdown combined to give Treasuries a 9.8 percent return last year, the most since 2008.
$99 Billion

The Treasury sold $99 billion of debt this week, auctioning $35 billion of two-year notes on Jan. 24, $35 billion of five- year debt on Jan 25 and $29 billion of seven-year securities at a record low yield on Jan. 26. Investors who snapped up the Treasury’s five-year notes saw the assets’ market value soar as much as $238 million in less than two hours of trading.

“If you have a Fed on hold for the next three years, five- year notes probably make some sense,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., one of 21 primary dealers obligated to bid in U.S. debt auctions.

New York Fed President William C. Dudley said the economy will probably slow this year while confronting risks “skewed to the downside.” The central bank forecast Jan. 25 that gross domestic product would likely expand about 2.2 percent to 2.7 percent this year, compared with an estimate in November of 2.5 percent to 2.9 percent.
‘On the Table’

The Federal Open Market Committee this week voted to extend its pledge to keep interest rates low until at least late 2014, compared with a previous date of mid-2013. Further bond buying is “an option that’s certainly on the table,” Bernanke said at a news conference Jan. 25.

“The Fed has made it clear that they don’t care about inflation with the economy in the shape it is in,” said Jay Mueller, who manages about $3 billion of bonds at Wells Fargo Capital Management in Milwaukee. “They want to keep rates low as long as they can.”

Yields on 30-year Treasuries increased to 1.17 percentage points more than those maturing in 10 years, the biggest spread since September, on concern that more stimulus from the Fed will eventually spur higher inflation.

“There was a strong message sent to indulge or embrace the belly, or intermediate part, of the curve,” Russ Certo, managing director of rates trading at Gleacher & Co. in New York. “The Fed set the tone for not just this week, but for the quarter or the year.”
Stockpile Rebuilding

Shorter-term Treasuries tend to track what the central bank does with its target for overnight lending, while longer maturities are more influenced by the inflation outlook.

The rise in GDP, the value of all goods and services produced, follows a 1.8 percent gain in the prior quarter, Commerce Department figures showed today in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 3 percent increase. Excluding a jump in inventories, growth was 0.8 percent. Stockpile rebuilding accounted for 1.9 percentage points of the expansion.

The difference between yields on five-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt known as the break-even rate, widened today to 1.82 percentage points, up from 1.55 at the end of last year.

Demand for inflation protection has led to a 1.2 percent gain in TIPS this year, following a 14 percent return in 2011, according to Bank of America Merrill Lynch indexes.
‘Keep Rates Low’

The Fed sold $8.74 billion of securities due from March 2014 to January 2015 yesterday as part of a plan to replace $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs. The central bank purchased $2.3 trillion of debt in two rounds of quantitative easing that ended in June.

Fed officials are “going to keep their foot on the gas pedal until it’s wrong,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “Will it go too far and crash? I think they’re comfortable saying they know how to put their foot on the brakes.”

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum