Treasury 10-year yields dive on Fed debt buying
Benchmark falls for third straight week as retail sales rise in July
New York: Treasury 10-year yields dropped to a 16-month low as the Federal Reserve said it would resume buying US government debt to bolster a faltering economic recovery.
The benchmark yields fell for a third straight week as government reports showed retail sales increased in July less than economists forecast and the annual rate of inflation remained at a 44-year low for a fourth month. The central bank will return to buying debt on Tuesday with purchases of maturities from August 2014 to July 2016.
"Market participants are going to be hard-pressed to push rates higher because you're going against the Fed," said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc, one of the 18 primary dealers that trade directly with the central bank.
"It's going to be very hard in this period to push rates higher unless you get good growth."
The yield on the 10-year note decreased 15 basis points to 2.67 per cent, the lowest level in 16 months, according to BGCantor Market Data, from 2.82 per cent on August 6. A basis point is 0.01 percentage point. The two-year yield rose for the first time in 11 weeks, increasing 2 basis points to 0.53 per cent after sliding on August 11 to a record low 0.4892 per cent.
Mortgage assets
The extra yield Treasury investors demand to hold 10-year notes over two-year securities narrowed 0.16 percentage point to 2.15 percentage points, indicating the flattest yield curve since April 2009.
The Fed said following its policy meeting on August 10 that it will reinvest principal payments on mortgage assets it holds into long-term Treasuries after judging that "the pace of economic recovery is likely to be more modest in the near term than had been anticipated."
Central bankers adopted a $2.05 trillion floor for their securities portfolio, pivoting toward a quantitative target for monetary policy. The central bank plans to buy about $18 billion of Treasuries and inflation-protected securities by the middle of September.
"The Fed has set the groundwork for quantitative easing, and the bond market is likely telling you that it won't be enough," Kevin Giddis, president of fixed-income capital markets at the brokerage firm Morgan Keegan Inc said.
