By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices rose on Tuesday, pushing yields on 2-year notes to a record low, after a published report saying the Federal Reserve may buy more debt.
An article in The Wall Street Journal said the Federal Reserve may consider a modest change in how they manage their massive portfolio, by using receipts from maturing mortgage debt or Treasury bonds to purchase more debt.
"Effectively, the Fed, by making this adjustment will signal to the market that they are concerned about their forecasts," said William O'Donnell, head of Treasury strategy at RBS Securities.
"While I have been in the camp that the second round of quantitative easing is further away, this smaller adjustment would have an impact in reducing overall Treasury yields."
Yields on 2-year notes (UST2YR 0.54, -0.03, -4.95%) , which moves inversely to prices, fell 3 basis points to 0.53% recently, after touching a new record low of 0.52% earlier. A basis point is 0.01%.
Yields on 10-year notes (UST10Y 2.93, -0.04, -1.42%) declined 6 basis points to 2.90%, near the lowest level since April 2009.
Treasury prices stayed higher after the Commerce Department said consumer spending and incomes were unchanged in June, while economists had expected some increases.
The report's measure of consumer prices excluding food and energy did not change in June and were up 1.4% over the past year. Diminishing threats of inflation have made investors more comfortable buying Treasury bonds at such low yields historically. Rising inflation erodes the value of fixed bond payments.
Still to come are U.S. reports on factory orders and pending home sales.
