MW: Treasurys rise, with Fed expectations in focus
By Deborah Levine, MarketWatch
SAN FRANCISCO (MarketWatch) — Treasury prices rose on Monday, pushing yields back towards their lowest level in two weeks, as signs of a slowing global economy and continued worries about European debt reinforced expectations that the Federal Reserve will extend the Treasury-buying portion of one of its easing programs into next year.
The central bank ends a two-day meeting on Wednesday, with the Fed expected to announce a continuation of purchases of longer-dated Treasurys. It’s also expected to end the other part of the program known as Operation Twist: selling of shorter-term debt. Read: What to expect from the Fed this week.
Yields on 10-year notes 10_YEAR -1.23% , which move inversely to yields, fell 2 basis points to 1.61%. A basis point is one one-hundredth of a percentage point.
Thirty-year bond yields 30_YEAR -0.57% slipped 2 basis points to 2.79%.
Yields on 5-year notes 5_YEAR -1.91% declined 1 basis point to 0.62%.
The main questions among bond holders for the Fed are: whether the Fed will continue to buy about $40 billion to $45 billion in Treasurys every month, or pare that to around $20 billion; and whether the Fed will go back to buying slightly shorter-term maturities than it currently buys. It’s been buying debt maturing in six to 30 years, so it could expand that to include 5-year debt, for example.
There is little question the Fed will continue its mortgage-backed securities purchases — a separate program which the market has been calling its third round of quantitative easing, or QE3.
“We look for the Fed to announce that it will halt its sales of short-term Treasuries and convert its purchases of $45 billion a month in long-term Treasuries into open-ended purchases, complementing the $40 billion per month in agency MBS purchases it initiated at its September meeting,” said Michael Gapen, an analyst at Barclays.
On Monday, the prospect of an early election in Italy and slowing Chinese export data pushed up uncertainty and increased the appeal of U.S. debt. Read: China’s exports, trade surplus disappoint.
“Treasurys found support overnight following disappointing Chinese trade data and political turmoil in Italy,” said bond strategists at CRT Capital Group. Read: Watch Italian bond yields as Monti calls it quits.
Analysts are also watching for progress to be made in Washington to address the steep drop in federal spending and rise in taxes after year-end known as the fiscal cliff.
Gains could be limited as traders set up for the week's trio of auctions.
