Treasuries erase gains as economy improves

The Federal Reserve said policy makers see improvement in economic activity. How will this impact your bond investments?
OCT 30, 2013
Treasuries erased gains after the Federal Reserve said policy makers see improvement in economic activity while maintaining monthly bond purchases. Yields on U.S. government debt rose as the Federal Open Market Committee said it will “await more evidence that progress will be sustained before adjusting the pace of its purchases” at the conclusion of a two-day meeting in Washington. Benchmark 10-year yields fell to almost a three-month low earlier after U.S. companies added the fewest workers in six months and core inflation rose less than projected. “This is pretty much what the market expected,” Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group AG, one of the 21 primary dealers that trade with the Fed, said in an interview on Bloomberg Television. “The Fed is still in risk management mode so they are going to continue to buy bonds. They want to see those inflation numbers come up a little bit.” The 10-year note yield rose two basis points, or 0.02 percentage point, to 2.52 percent at 2:11 p.m. in New York, according to Bloomberg Bond Trader prices. It earlier fell three basis points to 2.47 percent. The Fed's $85 billion in monthly purchases will remain divided between $40 billion a month of mortgage bonds and $45 billion in Treasury securities. Bernanke Exit Ben S. Bernanke is pushing unprecedented accommodation into the final months of his Fed chairmanship as he seeks to shield the four-year economic expansion from the impact of higher borrowing costs and this month's partial U.S. government shutdown. The 16-day closing resulted in the furloughs of as many as 800,000 federal workers and delayed release of data the Fed says it needs to evaluate the economy. Fed officials decided at the September meeting to postpone a trim in their $85 billion in monthly bond buying after yields on 10-year notes rose to almost 3 percent at the beginning of the month from 1.63 percent in early May on expectations of a pullback. Yields on the benchmark 10-year note have fallen to 2.52 percent since on expectations policy makers again will push back plans for tapering after the federal government partially shut down for 16 days and U.S. payrolls rose last month less than economists projected. March Taper The Fed will pare its asset purchases at its March meeting, according to a Bloomberg survey of analysts on Oct. 17-18. The purchases, made to push down long-term yields and spur growth, tend to debase the greenback. Policy makers currently are falling short of their employment and price goals, with joblessness at 7.2 percent -- compared with 5 percent when the 18-month recession began in December 2007 -- and annual inflation rates missing their 2 percent target by a half percentage point or more every month since November, based on the personal-consumption-expenditures price index. U.S. companies added 130,000 jobs in October, down from September's 145,000 gain that was revised lower, figures from Roseland, New Jersey-based ADP showed today. The median forecast of 39 economists surveyed by Bloomberg called for an advance of 150,000. A separate Labor Department report showed the consumer price index increased 0.2 percent in September, matching the median forecast of 86 economists surveyed by Bloomberg, after rising 0.1 percent the prior month. Overall consumer prices increased 1.2 percent in the 12 months through last month, the smallest gain since April. The Fed has kept interest rates at almost zero since December 2008 and undertaken three rounds of bond buying that have swelled its balance sheet to a record of $3.66 trillion. The Fed has been buying $40 billion a month in mortgage debt and $45 billion of Treasuries. (Bloomberg News)

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