MW: BOND REPORT: Treasurys gain ahead of Fed decisions
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasurys prices rose Wednesday morning, pushing yields down ahead of the end to the Federal Reserve's two-day meeting, at which it is widely expected to ease its target interest rate to the lowest level since 2003.
Yields on two-year Treasurys fell 4 basis points, or 0.04%, to 1.59%. Shorter-term debt tends to be more sensitive to changes in rate expectations.
However, U.S. debt pared some of its advance after a report showed durable-goods ordered unexpectedly improved last month.
Durable goods orders rose 0.8% in September, the Commerce Department said. Economists surveyed by MarketWatch had forecast a 1% decline.
Excluding transportation, orders fell 1.1% in the month, adding to a total drop of 19% over the last three months. See Economic Report.
"This report points to a further deterioration in manufacturing conditions," economists at RDQ Economics said.
Treasurys have returned 6.97% in the last 12 months, according to an index compiled by Merrill Lynch, as the economy shrunk and losses on mortgage-related assets fueled a credit crisis, making banks unwilling to lend.
Since September 2007, the Fed has lowered rates to 1.50% from 5.25% to encourage lending, but the moves have had little tangible impact.
The U.S. central bank is widely expected to lower its rate to 1.00% when it ends its meeting, around 2:15 p.m. Eastern time.
"Anything less would be an unwelcome shock to the fragile stability of the markets," said strategists at RBS Greenwich Capital. The statement that policy makers put out will be parsed "in the context of deflation versus the wealth-effect impact of the ongoing global equity meltdown and the broader economic weakness."
Inflation-indexed Treasurys show investors expect overall prices to decline for up to five years. See related news.
Treasury Inflation Protected Securities, or TIPS, maturing through 2013 carry yields higher than regular Treasurys of the same maturities, a phenomenon that hasn't happened in years.
TIPS usually carry a lower yield because the debt holders also get paid the rate of inflation when the securities mature.
Lack of concern about inflation also sent yields on 30-year bonds to an all-time low earlier this month. The long bond, typically most sensitive to the risk that inflation will erode the value of fixed payments, now yields 4.16%.
