U.S. ISM services report for September and Fed buyback on tap
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices rose Tuesday, pushing 10-year yields further toward the lowest in nearly two years, as actions taken in Japan and Europe heightened expectations among bond investors that the Federal Reserve may be inclined to similarly ease monetary policy.
Yields on 10-year notes (UST10Y 2.47, -0.01, -0.28%) , which move inversely to prices, fell 2 basis points to 2.46%. A basis point is 0.01%.
Yields on 2-year notes (UST2YR 0.41, 0.00, 0.00%) declined 1 basis point to 0.41%, after again having touched a record low.
“Yield levels, especially in 10-year notes, can go considerably lower due to lackluster strength in the economy,” said Tom di Galoma, head of U.S. rates trading at Guggenheim Partners.
Still to come are U.S. data on the services sector at 10 a.m. Eastern time, followed by the Fed’s purchases of U.S. bonds to reinvest maturing mortgage debt at around 11 a.m. Eastern.
The Fed is expected to buy about $5 billion in bonds.
Overnight, the Bank of Japan opted to lower its already-low interest rates and expand asset purchases. Read about Bank of Japan.
“The unexpected Japanese decision to expand its balance sheet speaks to the fragility of the global recovery and further aids the already consensus view that another full round of asset purchases from the Fed is forthcoming,” said strategists at CRT Capital Group.
Also Tuesday, Moody’s Investors Service put Ireland’s credit rating on review for possible downgrade, signaling continued problems in European sovereign debt. See more on Moody’s, Ireland.
Analysts also noted comments made late Monday by Fed Chairman Ben Bernanke that fresh asset purchases by the Fed could boost the economy.
“I do think the additional purchases — although we don’t have the precise numbers for how big the effects are — I do think they have the ability to ease financial conditions,’’ the Associated Press quoted Bernanke as saying.
The bulk of his comments related to the need for Congress to adopt tougher budgetary rules, though he warned against taking deficit-cutting actions too soon. Read about Bernanke’s speech.
However, the market’s already rallied quite a bit as investors have been busy buying U.S. debt in anticipated that the Fed will resume some large-scale purchases of Treasurys, possibly making an announcement along these lines as soon as next month. That may limit the rally in the meantime.
“When you look at the news of the last 12 hours and then square it with the very modest rally in Treasurys this morning, you get a strong whiff of how long the market really is,” Bill O’Donnell, head of Treasury strategy at RBS Securities, wrote in a morning note.
