BOND REPORT: Treasurys Move Higher As Fed Buys Mortgage Bonds
05 Januar 2009 - 8:32PM
Dow Jones News
By Deborah Levine
Short-term Treasurys gained Monday, pushing yields down after
the Federal Reserve said it had begun buying mortgage-backed
securities.
Gains were limited and longer-term yields rose, however, due to
concern about increasing government-debt issuance starting with
$166 billion this week.
Two-year note yields (UST2YR) fell 4 basis points to 0.82%. A
basis point is one one-hundredth of a percent.
Ten-year note yields (UST10Y) rose 10 basis points to 2.51%.
Thirty-year bond yields (UST30Y) jumped by the most since
September, up 20 basis points to 3.01%.
The Fed's New York branch said Monday it has begun purchasing
fixed-rate mortgage-backed securities guaranteed by Fannie Mae
(FNM), Freddie Mac (FRE) and Ginnie Mae.
The purchases follow an announcement made in November that the
Fed would buy up to $500 million in mortgage-backed debt from the
major government-sponsored agencies to support the housing
market.
The Fed will not release details on what it's purchased or how
much until Thursday, and will then update those details weekly. The
U.S. central bank also has purchased debt directly issued by the
agencies in the last month.
Treasurys benefit when the Fed buys other kinds of debt because
the purchases lower the duration of an investor's portfolio, said
Andrew Brenner, co-head of structured products and emerging markets
at MF Global.
Duration is a measure of the sensitivity of the price of a
fixed-income asset to a change in interest rates, and is partially
determined by maturity. An investor who wants to maintain their
duration could buy long-term Treasurys to make up the
difference.
More bonds coming
The Treasury Department will sell $30 billion in 3-year notes
(UST3YR) on Wednesday, in line with expectations of Wrightson ICAP,
a research firm specializing in government finance.
The Treasury began reissuing the maturity monthly in November
after a long break, and is expected to continue "aggressively"
increasing the amount offered, Wrightson said.
The government will also auction $16 billion in 10-year notes on
Thursday, more than anticipated.
The sale will be a second reopening of the quarterly issue,
meaning the security will carry the same yield and maturity as the
notes issued in November.
The government usually reopens the 10-year note sale a month
after the original offering. But this is the first time in some
years that it's having a second reopening, making the size
difficult to estimate, according to Wrightson. However, analysts
there expected $12 billion to be offered.
On Tuesday, the government will sell $8 billion in
inflation-protected securities. Another $112 billion in short-term
bill auctions are also scheduled.
A report Monday showed construction spending declined by 0.6% in
November, less than some economists had forecast.
Treasurys also maintain some appeal in expectation of a constant
march of economic data that is expected to indicate the recession
is far from over.
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