MW: Treasury yields approach record lows ahead of FOMC
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices rose on Wednesday, pushing benchmark yields down towards all-time lows as traders waited to see whether the Federal Reserve will buy more longer-term securities and let short-term ones mature.
Yields on 10-year notes 10_YEAR -1.96% , which move inversely to prices, fell 3 basis points to 1.91%. Its record low of 1.87% was touched last week. A basis point is 1/100th of a percentage point.
Yields on 2-year notes 2_YEAR -4.71% declined 1 basis point to 0.17%, not far above its lowest ever touched in recent days.
Thirty-year bond yields 30_YEAR -0.50% declined 2 basis points to 3.19%, near their lowest since January 2009. The all-time closing low of 2.57% was touched the month before.
“We’re at an equilibrium right now around 2% on 10-year yields,” said Anthony Valeri, fixed-income investment strategist at LPL Financial.
The Federal Open Market Committee ends its meeting at 2:15 Eastern time.
Officials are expected to repeat that they’ll keep the fed funds rate low until 2013, but add that they plan to shift the composition of the assets it’s holding in favor of longer-dated debt.
That kind of policy, which analysts have nicknamed Operation Twist after a similar program in the 60s, has driven down longer-dated yields more than short-term ones. Read more on Operation Twist lowering long-term yields.
The Fed’s goal is to boost investor and consumer confidence more than anything, Valeri said. Fed Chairman Ben Bernanke has as much as acknowledged the central bank is the only game in town to stimulate the economy, which is getting no help on the fiscal side.
“Because of gridlock in Washington and the economy not getting any help from Washington, Bernanke feels compelled to so something, even if he thinks it won’t do much,” Valeri said.
Something like Operation Twist could lower the cost that companies have to pay above Treasury rates and keep mortgage rates low for Americans able to refinance, he said.
“There are lots of doubts whether this will be positive or work, but it’s about the fragile confidence, so any step in the right direction is taken positively,” Valeri said. “The Fed will, at the margin, be reassuring.”
