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TREASURIES-Bond prices fall after Fed sets new purchase program
December 12, 2012 / 6:11 PM / 5 years ago

TREASURIES-Bond prices fall after Fed sets new purchase program

* Fed announces $45 bln/month of Treasury buying
    * Fed adopts numerical thresholds for policy
    * Benchmark yields range-bound in "fiscal cliff" worries

    By Karen Brettell and Luciana Lopez
    NEW YORK, Dec 12 (Reuters) - U.S. Treasury debt prices sank
on Wednesday after the Federal Reserve's announcement of a new
bond buying program disappointed investors because purchases of
longer-dated securities will fall with the expiration of
"Operation Twist" at month-end  
    The Fed committed to monthly purchases of $45 billion in
Treasuries on top of the $40 billion per month in
mortgage-backed bonds it started buying in September.
    In a surprise move, the Fed also adopted numerical
thresholds for policy. 
    The bank said it will likely keep official rates near zero
as long as unemployment remains above 6.5 percent, inflation one
to two years ahead is projected to be no more than 2.5 percent,
and long-term inflation expectations remain contained.
    "By having a relatively high threshold at 6.5 percent
unemployment, it is really an unchanged policy stance," said Ira
Jersey, an interest rate strategist, Credit Suisse, New York.
"They are basically taking out the same amount of duration that
they were in Twist, but they are buying less in the long-end
than they had been before," said Ira Jersey, an interest rate
strategist, Credit Suisse, New York.
    Under Twist, the Fed has been selling shorter-dated
Treasuries and using the proceeds to buy longer-dated debt. The
program is set to expire at the end of December, and analysts
say the Fed has little to no shorter-dated debt to sell.
    "They are buying less in 7s through bonds and buying some of
the 5s, which they weren't doing before," Jersey added. 
    After an initial bounce higher, Treasuries plunged. The
benchmark 10-year notes fell 11/32 in price to yield
1.692 percent.
    Prices on 30-year bonds slumped 1-02/32 to yield
2.894 percent, the highest in more than a month.    
    Treasuries had edged slightly higher on Wednesday following
strong demand in the sale of $21 billion of 10-year notes. 
    The Treasury on Thursday will sell $13 billion of 30-year
bonds, and next week it will auction two-year, five-year and
seven-year notes, along with five-year Treasury
inflation-protected securities. The Treasury on Tuesday sold $32
billion of three-year notes.

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