Treasuries rise as Fed begins purchases of longer-term US debt

April 2 (Bloomberg) -- Treasuries rose as the Federal Reserve bought $4.5 billion of notes in the first of four rounds of purchases over three days that equals the most by the central bank since December.

Yields are declining in the first day of trading after the biggest quarterly rout in the U.S. government-bond market since 2010 as policy makers continue to buy debt to ensure borrowing costs remain low as the economy shows signs of strengthening. The drop comes even as a report showed manufacturing in the U.S. expanded at a faster pace than forecast in March.

“This week we have quite a few buybacks,” said Aaron Kohli, an interest-rate strategist BNP Paribas SA in New York, one of 21 primary dealers that trade with the Fed. “We don’t have anything in the way of supply. All that from the supply-demand balance is working in favor of Treasuries.”

Yields on 10-year notes fell three basis points, or 0.03 percentage point, to 2.17% at 11:53 a.m. New York time, according to Bloomberg Bond Trader prices. The 2% securities maturing in February 2022 rose 9/32, or $2.81 per $1,000 face amount, to 98 14/32.

The central bank is scheduled to purchase as much as $12 billion in Treasuries maturing from July 2018 to February 2042 this week and up to $1.5 billion in inflation-indexed debt. The Fed today purchased Treasuries maturing from May 2020 to November 2021.

The Fed is consolidating the purchases in a three-day period before the Labor Department releases a report on April 6, a partial holiday for Good Friday, showing the U.S. added 203,000 jobs last month, according to a Bloomberg News survey. The purchases are part of a program ending in June that replaces $400 billion of shorter-term debt with longer maturities to hold down borrowing costs.

Bloomberg News

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