By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Long-term Treasury prices erased losses on Wednesday, while shorter-term debt declined, after the U.S. Federal Reserve said it will extend its bond-purchase program for another $267 billion, through the end of the year.
Yields on 10-year notes 10_YEAR +0.55% , which move inversely to prices, erased a rise trade at 1.62%, from 1.66% before the decision. A basis point is one one-hundredth of a percentage point.
Yields on 30-year bonds 30_YEAR -0.44% turned down 2 basis points to 2.72%.
The Federal Open Market Committee also left its target range for interest rates between zero and a quarter-percentage point.
“The Fed said, ‘Let’s not risk stopping and letting assets fall, let’s just keep things going,’ “ said Bret Barker, senior portfolio manager at TCW, which oversees $128 billion.
Fed officials will release revised forecasts and Fed Chairman Ben Bernanke will hold a press conference beginning at 2 :15 p.m. Eastern. See story on Fed decision.
The most common prediction from analysts was for the Fed to continue its program known as Operation Twist. Other possibilities were outright buying of more bonds — a strategy known as quantitative easing — or making bigger changes to the language of its statement. Read recent story on Fed expectations.
“The market expected the Fed had to act here, either sooner or later,” Barker said. “QE is still on the table, and if they need to act, they probably well.”
Continuing Operation Twist would tend to have very different effects on shorter-term maturities (which the Fed would continue to sell) and longer-dated ones (which the Fed would continue to buy).
Yields on 3-year notes 3_YEAR +6.14% , the longest maturity the Fed has been buying, rose 2 basis points to 0.41%.
Two-year yields 2_YEAR +5.70% , which have been closely pinned to the Fed’s target rate, turned up 1 basis point to 0.31%.
Selling 4-year notes?
The amount -- $267 billion -- was in line with analysis based on the amount of those maturities the Fed still has.
There had been some debate of the Fed expanding Twist by selling maturities up to four years. That would have given it much more firepower, but analysts say that risks causing further disruptions in consumer credit — since many loans are based on 5-year maturities.
”The risk is of an expansion of the sales window to the 4-year sector,” said Ajay Rajadhyaksha, head of U.S. fixed income and securitized products strategy at Barclays Capital, before the Fed’s decision. “This can be hedged by being long the market, in our view, as in this scenario, the Fed will also need to put $350 to $400 billion to work.”
Deborah Levine is a MarketWatch reporter, based in New York.
