BLBG: Two-Year Treasury Yields Stay Near Lowest Level Before Fed Meeting Begins
Two-year Treasury yields stayed near a record low amid speculation the Federal Reserve, which starts a two-day meeting tomorrow, will step up purchases of government debt to boost the economy.
The yield on 10-year Treasury notes declined to the lowest since Oct. 26 after a report that showed PCE Core, the fed’s preferred measure of inflation was unchanged at 1.4 percent. The central bank will buy debt maturing from April 2013 to September 2014 today as part of its plan to keep borrowing costs down.
“It’s all about the Fed this week,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “Much of it has been priced in, but the underlying bullish implications for QE2 adds a bit of a support to the market.”
The yield on the benchmark 10-year note fell three basis points to 2.57 percent at 8:34 a.m. in New York, according to BGCantor Market Data. The 2.625 percent security due in August 2020 rose 8/32, or $2.50 per $1,000 face amount, to 100 15/32.
Two-year yields were unchanged at 0.34 percent, near the 0.327 percent record low reached on Oct. 12. A basis point is 0.01 percentage point.
Consumer Numbers
Consumer spending rose less than forecast in September as incomes dropped for the first time in more than a year, a sign Americans may keep rebuilding savings and paring debt as the economy is slow to recover.
Purchases increased 0.2 percent, the smallest gain in the third quarter, Commerce Department figures showed today in Washington. Incomes fell 0.1 percent, the first drop since July 2009, and the Federal Reserve’s preferred measure of inflation stagnated, capping the smallest 12-month gain in nine years.
Treasuries handed investors a 0.2 percent loss last month, the first decline since March, according to Bank of America Merrill Lynch indexes, as investors pared bets on the size of asset purchases likely to be announced by the Fed. Policy makers said Sept. 21 they were prepared to act to support the recovery and increase the inflation rate, raising speculation they will increase their government bond purchases.
“Investors are still generally long and bullish on Treasuries,” William O’Donnell, U.S. government bond strategist at RBS Securities Inc. in Stamford, Connecticut, one of 18 primary dealers that trade with the Fed, wrote in a note to clients. “We go into Wednesday’s Federal Open Market Committee statement with a wide range of expectations for the ultimate size of QE2 --roughly $500 billion to $5 trillion -- so it’s tough to say where the disappointment or excitement thresholds lie.”
To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
