The Fed will buy up to $9 billion in this operation
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices fell Monday, pushing yields up amid reports of more political pushback against the Federal Reserve’s just-started quantitative-easing program.
The U.S. central bank will conduct its second buyback under the program later in the session.
Yields on 10-year notes (UST10Y 2.86, +0.07, +2.55%) , which move inversely to prices, rose 7 basis points to 2.86%. A basis point is 0.01%.
Yields on the benchmark securities touched 2.91% earlier, the highest since early August, before Fed officials began hinting that they may begin a new bond-buying program.
Yields on 2-year notes (UST2YR 0.52, +0.01, +2.36%) rose to 0.58% earlier, the highest since mid-September. They were recently little changed at 0.52%.
Bonds pared losses slightly after a report showed a sharp deterioration of business conditions in the New York area.
The New York Fed’s Empire State manufacturing survey dropped 27 points to negative 11.1 in November, far worse than economists predicted. Read about Empire survey.
A separate report showed U.S. retail sales rose 1.2% in October, more than expected thanks to vehicle sales. Excluding autos, sales rose 0.4%, close to what analysts estimated. See story on retail sales.
Still to come is the Federal Reserve’s first buyback of Treasurys this week. The Fed said it will buy $7 billion to $9 billion in debt maturing between 2016 and 2017. It’s expected to end the operation after 11 a.m. Eastern time. See results of recent Fed buybacks.
“The Fed’s been under nothing but fire for zero rates and its talk of QE, which really got under way in August,” said bond strategists at CRT Capital Group. “They’ve only started the second phase, and it was greeted with criticism before it’s had any impact.”
One of the main criticisms of any quantitative-easing plan is that it tends to weaken the country’s currency.
But the U.S. dollar (DXY 78.44, +0.36, +0.46%) has improved about 2.5% since the Fed formally announced the program on Nov. 3. And it’s up Monday despite articles and ads asking the central bank to reconsider the program. See more on the dollar.
“The open letter from GOP economists and politicians for the Fed to abandon QE2 is likely to fall on deaf ears, as the Fed cherishes its independence in both directions,” said strategists at TD Securities.
They noted that former Fed chairman Paul Volcker came under pressure for jacking up interest rates to fight inflation in the ‘80s.
“Volcker’s anti-inflation policy was not popular, and now we find the Fed under criticism for the opposite,” TD analysts wrote in a note.
On Friday, bond prices fell, adding to steep losses for the week, after the first buyback. See Friday’s Bond Report.
Analysts said much of the recent rise in yields has been due more to positioning imbalances than to reconsidering the Fed’s intentions.
“Although there may be no reason to expect the rally to reignite because of Fed buying in the short run, the heavy buying of U.S. Treasurys will eventually remove an amount equal to net issuance of Treasurys over the next eight months,” said strategists at Nomura Securities.
That will limit any selloff and keep yields in a range, they said.
