Fed to announce schedule of next $S100 billion in bond buybacks
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices edged lower Thursday, pushing up on yields, as traders wait to see whether investors turn out in droves for the session’s 30-year bond sale the way they did for the government’s 10-year note auction on Wednesday.
“The strong 10-year serves to relieve the 30-year [auction] of a bit of the pressure it would have come under if the 10-year sale hadn’t done so well,” said George Goncalves, bond strategist at Nomura Securities. “Still, we may find it difficult to get a strong bond auction.”
Yields on 10-year notes (UST10Y 3.68, +0.03, +0.74%) , which move inversely to prices, rose 2 basis points to 3.68%. A basis point is one one-hundredth of a percent.
Yields on the current 30-year bond (UST30Y 4.74, +0.03, +0.57%) increased 3 basis points to 4.74%.
The bond market registered little reaction to a report showing a bigger-than-expected drop in first-time jobless claims for last week, because bad weather could have prevented people from applying.
“Through the weather-related and turn-of-the-year volatility, it appears from the four-week average that the trend in initial jobless claims continues to move lower,” said economists at RDQ Economics. Read more on U.S. data about initial and continuing jobless claims.
At 1 p.m. Eastern time, the Treasury Department will close its auction of $16 billion in 30-year bonds. See recent Treasury auction results.
On Wednesday, a group of investors that includes foreign central banks purchased the largest proportion ever of the government’s new 10-year notes, triggering a rally in the broader market.
Earlier this week, yields on long- and short-term debt reached the highest level since last spring, which likely made more investors finally feel that the price for government debt is right.
“The 10-year was a game-changer, comforting investors who had just recently wondered if a bottom was anywhere nearby,” Goncalves wrote in a note.
However, 30-year yields are not as cheap relative to other maturity points, and 30-year bond auctions tend to come at a slightly higher yield than expected, he said.
Also Thursday, the Federal Reserve will release its schedule of upcoming debt buybacks. The central bank’s scheduled will come out at 2 p.m. Eastern time. See Fed’s Web site with recent schedule.
TD Securities expects the Fed to keep up pace of buying around $75 billion to $80 billion for the next month as part of a policy often referred to as quantitative easing. The objective is to keep interest rates from rising too much and impeding an economic recovery.
The program also includes reinvestments of cash from the Fed’s maturing mortgage-related holdings into Treasury securities. The central bank is likely to buy roughly another $30 billion over the next month, said Richard Gilhooly, director of rates strategy at TD Securities.
The Fed has purchased about $397 billion in U.S. debt since August, when the mortgage reinvestment plan began, according to Morgan Stanley.
