Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

Treasury bond yields dive as market bets on new Fed buying plan

Another slump in global stocks is helping to drive investors back to U.S. Treasury bonds, sending yields sharply lower again.

Something else also is stoking demand for Treasuries: expectations that the Federal Reserve this week will announce a new bond-buying plan specifically aimed at pulling long-term interest rates lower.

The 30-year Treasury bond yield slid to 3.19% as of 11:40 a.m. PDT on Monday, down from 3.31% on Friday and the lowest since January 2009.

The 10-year T-note, a benchmark for mortgage rates, fell to 1.94%, down from 2.05% on Friday and nearing the recent generational low of 1.92% reached on Sept. 9.

Bond yields tumbled at the opening of trading after European markets took another drubbing on fears that a debt default by Greece is becoming inevitable. Europe’s unending woes then tripped Wall Street, which had rebounded last week. The Dow Jones industrial average was off 172 points, or 1.5%, to 11,336 at about 11:40 a.m. PDT, after rallying 4.7% last week.

The renewed pain in equity markets is boosting Treasury bonds’ role as a classic haven.

Bond buyers also are confident that the Fed will try to keep yields moving lower: Wall Street’s main bond dealers have been stockpiling Treasuries, anticipating that the central bank wants to pull longer-term yields down further.

Fed policymakers meet Tuesday and Wednesday. Many bond pros believe the Fed will conclude its meeting by announcing a plan to sell some of its shorter-term Treasury holdings and use the proceeds to buy longer-term issues, such as 10-year notes, over an extended period.

With short-term rates already near zero, the idea would be that the Fed could help bolster the economy by putting further downward pressure on longer-term rates. That could help pull mortgage rates lower (good for homeowners who can refi) and cut borrowing costs on long-term bonds issues by companies and state and local governments.

Whether it would make a big difference in the economy isn’t clear, but the bond market figures the Fed has little to lose by trying.


Home loan rates drop again

California sells $5.4 billion in short-term notes

Fed Chief Bernanke doesn't tip hand on possibility of more stimulus

-- Tom Petruno

 Photo: The Federal Reserve Building in Washington. Credit: Karen Bleier / AFP / Getty Images

Comments  ()


Recommended on Facebook


In Case You Missed It...