MW: Treasurys higher following GDP data, Fed plans
Federal Reserve plans to support mortgage- and asset-backed securities
NEW YORK (MarketWatch) -- Treasury prices rallied Tuesday, pressuring yields lower, as data showed the U.S. economy shrank more than previously estimated in the third quarter.
Prices for U.S. debt also held their ground after the Federal Reserve announced plans to buy mortgage-backed securities and support asset-backed debt holders in Washington's latest bid to spur lending. See related news.
Ten-year note yields fell 21 basis points, or 0.21%, to 3.12%.
Thirty-year bond yields also dropped, surrendering 18 basis points to 3.59%.
Bond prices move inversely to their yields.
Prices advanced overnight as Japanese investors seized on higher yields after a three-day weekend.
The Commerce Department's revised reading for the three months ended in September showed gross domestic product declined 0.5%. See Economic Report.
Separately, the Conference Board said consumer confidence unexpectedly improved this month due to lower gas prices.
The Fed's new program are spurring buying in to mortgage-backed securities and agency debt, forcing dealers to hedge such trades by buying similar-maturity Treasurys and other securities, traders said.
"The overnight bid, downward revisions to GDP, the Fed's announcement [that] has brought a bid for MBS and the general concerns about the broader economy all contribute to the upside," for Treasurys, said Ian Lyngen, an interest-rate strategist at RBS Greenwich Capital. The firm is one of the 17 primary government securities dealers that trade directly with the Fed.
The move is also pushing down yields as the Treasury Department auctions a record $26 billion in five-year notes, with bids due at 1 p.m. Eastern.
The sale follows Monday's offering of the most two-year notes ever.
Buying is also coming from mutual-fund managers who have to match their portfolio duration, a measure of price sensitivity that is partly a function of maturity, to their benchmarks.
At the end of each month, the benchmark indexes add new debt sold during the month, which for November included high amounts of three- and 10-year notes as well as 30-year bonds.
