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Treasury Five-Year Yield Falls to Record as Fed Targets Midterm Securities
bloomberg
Wes Goodman, On Thursday November 4, 2010, 2:56 am EDT
Treasuries rose, pushing five-year yields to a record low, after the Federal
Reserve said it will focus its asset purchases on medium-maturity debt as
it tries to spur the economy.
Thirty-year bonds declined for a second day on speculation the U.S. central
bank’s plan to pump $600 billion into the economy by buying Treasuries will
cause inflation to accelerate. Concern inflation will surge is “overstated
,” Fed Chairman Ben S. Bernanke said in a Washington Post opinion piece.
“We have to follow the Fed and buy five- to 10-year Treasuries,” said
Satoshi Okumoto, a general manager in Tokyo at Fukoku Mutual Life Insurance
Co., which has the equivalent of $67.8 billion in assets. “We’re staying
away from 30-year Treasuries.”
The five-year yield declined four basis points to 1.07 percent as of 6:53 a.
m. in London, according to data compiled by Bloomberg. The 1.25 percent
security due in October 2015 climbed 6/32, or $1.88 per $1,000 face amount,
to 100 27/32. The yield slid to a record 1.0661 percent earlier today.
Thirty-year bond rates climbed one basis point to 4.05 percent, after
increasing 11 basis points yesterday when the Fed announced its asset-
purchase plans.
Treasuries due in 5 1/2 years to 10 years will account for 46 percent of the
Fed’s purchases, according to the central bank. Securities maturing in 17
years to 30 years will comprise 4 percent of the total.
‘Excessive Increases’
“Some concerns about this approach are overstated,” Bernanke said
yesterday in the Washington Post. “Critics have, for example, worried that
it will lead to excessive increases in the money supply and ultimately to
significant increases in inflation.”
Bernanke “is trying to stop long-term yields from going up,” said Kazuaki
Oh’e, a debt salesman in Tokyo at Canadian Imperial Bank of Commerce, the
North American nation’s fifth- largest lender. “He’s trying to reduce the
damage caused after the statement.”
Treasuries indicate investors have been increasing bets that inflation will
quicken.
The difference between yields on 10-year notes and Treasury Inflation
Protected Securities, a gauge of trader expectations for consumer prices
over the life of the securities, widened to 2.21 percentage points on Nov. 2
from this year’s low of 1.47 percentage points on Aug. 25.
The spread between five- and 30-yields expanded to a record 2.98 percentage
points today.
Reinvesting Proceeds
Before yesterday’s announcement, the Fed was already reinvesting proceeds
from its holdings of mortgage bonds in Treasuries. The central bank is
scheduled to buy notes due from October 2014 to September 2016 today under
that program, according to its website.
The central bank won’t be able to bring down U.S. unemployment by itself,
according to Pacific Investment Management Co., which runs the world’s
biggest bond fund.
The U.S. jobless rate has been above 9 percent since May 2009. Xerox Corp.,
the printer and business-services provider based in Norwalk, Connecticut,
said Oct. 21 it planned to cut 2,500 jobs.
Another problem with the central bank’s plan is that some of the money
pumped into the U.S. will leak out to other nations, strengthening
currencies in countries that need weaker exchange rates, wrote Mohamed A. El
-Erian, Pimco’s chief executive officer, in an article published by ft.com.
The decision increases the risks other nations will impose capital controls,
according to Pimco, which is based in Newport Beach, California, and also
published the article on its website.
‘Unfortunate Conclusion’
The central bank’s buying is known as quantitative easing because it aims
to increase the quantity of money in the economy. This round is being called
QE2 because the bank also scooped up debt last year.
“The unfortunate conclusion is that QE2 will be of limited success in
sustaining high growth and job creation in the U.S., and will complicate
life for many other countries,” El-Erian wrote. “With domestic outcomes
again falling short of policy expectations, it is just a matter of time
until the Fed will be expected to do even more.”
The Fed’s purchases may ultimately total about $2 trillion, economists at
Goldman Sachs Group Inc. led by Jan Hatzius in New York, wrote to clients
yesterday. Goldman Sachs is one of the 18 primary dealers authorized to
trade directly with the Fed.
Two-year yields will fall to record 0.28 percent by year- end, according to
John Herrmann, senior fixed-income strategist at State Street Global Markets
LLC and that rate’s most accurate forecaster in an analysis by Bloomberg
Rankings.
“Central bank demand and investor demand should really keep the two-year
yield tracking toward our target,” Herrmann said after the Fed announced
its purchase plan. The note yielded 0.33 percent, versus the record of 0.
3270 percent on Oct. 12.
bloomberg
Wes Goodman, On Thursday November 4, 2010, 2:56 am EDT
Treasuries rose, pushing five-year yields to a record low, after the Federal
Reserve said it will focus its asset purchases on medium-maturity debt as
it tries to spur the economy.
Thirty-year bonds declined for a second day on speculation the U.S. central
bank’s plan to pump $600 billion into the economy by buying Treasuries will
cause inflation to accelerate. Concern inflation will surge is “overstated
,” Fed Chairman Ben S. Bernanke said in a Washington Post opinion piece.
“We have to follow the Fed and buy five- to 10-year Treasuries,” said
Satoshi Okumoto, a general manager in Tokyo at Fukoku Mutual Life Insurance
Co., which has the equivalent of $67.8 billion in assets. “We’re staying
away from 30-year Treasuries.”
The five-year yield declined four basis points to 1.07 percent as of 6:53 a.
m. in London, according to data compiled by Bloomberg. The 1.25 percent
security due in October 2015 climbed 6/32, or $1.88 per $1,000 face amount,
to 100 27/32. The yield slid to a record 1.0661 percent earlier today.
Thirty-year bond rates climbed one basis point to 4.05 percent, after
increasing 11 basis points yesterday when the Fed announced its asset-
purchase plans.
Treasuries due in 5 1/2 years to 10 years will account for 46 percent of the
Fed’s purchases, according to the central bank. Securities maturing in 17
years to 30 years will comprise 4 percent of the total.
‘Excessive Increases’
“Some concerns about this approach are overstated,” Bernanke said
yesterday in the Washington Post. “Critics have, for example, worried that
it will lead to excessive increases in the money supply and ultimately to
significant increases in inflation.”
Bernanke “is trying to stop long-term yields from going up,” said Kazuaki
Oh’e, a debt salesman in Tokyo at Canadian Imperial Bank of Commerce, the
North American nation’s fifth- largest lender. “He’s trying to reduce the
damage caused after the statement.”
Treasuries indicate investors have been increasing bets that inflation will
quicken.
The difference between yields on 10-year notes and Treasury Inflation
Protected Securities, a gauge of trader expectations for consumer prices
over the life of the securities, widened to 2.21 percentage points on Nov. 2
from this year’s low of 1.47 percentage points on Aug. 25.
The spread between five- and 30-yields expanded to a record 2.98 percentage
points today.
Reinvesting Proceeds
Before yesterday’s announcement, the Fed was already reinvesting proceeds
from its holdings of mortgage bonds in Treasuries. The central bank is
scheduled to buy notes due from October 2014 to September 2016 today under
that program, according to its website.
The central bank won’t be able to bring down U.S. unemployment by itself,
according to Pacific Investment Management Co., which runs the world’s
biggest bond fund.
The U.S. jobless rate has been above 9 percent since May 2009. Xerox Corp.,
the printer and business-services provider based in Norwalk, Connecticut,
said Oct. 21 it planned to cut 2,500 jobs.
Another problem with the central bank’s plan is that some of the money
pumped into the U.S. will leak out to other nations, strengthening
currencies in countries that need weaker exchange rates, wrote Mohamed A. El
-Erian, Pimco’s chief executive officer, in an article published by ft.com.
The decision increases the risks other nations will impose capital controls,
according to Pimco, which is based in Newport Beach, California, and also
published the article on its website.
‘Unfortunate Conclusion’
The central bank’s buying is known as quantitative easing because it aims
to increase the quantity of money in the economy. This round is being called
QE2 because the bank also scooped up debt last year.
“The unfortunate conclusion is that QE2 will be of limited success in
sustaining high growth and job creation in the U.S., and will complicate
life for many other countries,” El-Erian wrote. “With domestic outcomes
again falling short of policy expectations, it is just a matter of time
until the Fed will be expected to do even more.”
The Fed’s purchases may ultimately total about $2 trillion, economists at
Goldman Sachs Group Inc. led by Jan Hatzius in New York, wrote to clients
yesterday. Goldman Sachs is one of the 18 primary dealers authorized to
trade directly with the Fed.
Two-year yields will fall to record 0.28 percent by year- end, according to
John Herrmann, senior fixed-income strategist at State Street Global Markets
LLC and that rate’s most accurate forecaster in an analysis by Bloomberg
Rankings.
“Central bank demand and investor demand should really keep the two-year
yield tracking toward our target,” Herrmann said after the Fed announced
its purchase plan. The note yielded 0.33 percent, versus the record of 0.
3270 percent on Oct. 12.
