Treasury yields trade near 3-week lows on Bernanke pledge

‘Growth Trajectory’

“It’s a follow-through on the same global-growth concerns and actions by the Fed,” said Scott Sherman, an interest-rate strategist in New York at primary dealer Credit Suisse Group AG. It’s also “about how global growth can present a risk to our growth trajectory.”

The central bank bought Treasuries maturing from November 2020 to August 2022 today as part of its program to swap shorter-term Treasuries for longer-term securities, according to its website.

The Fed has also purchased $2.3 trillion of securities between 2008 and 2011 in two rounds of another policy known as quantitative easing. The Fed said Sept. 13 it will buy $40 billion of mortgage-backed securities a month to support the economy by putting downward pressure on borrowing costs.

Inflation Expectations

Investors initially increased their inflation expectations on the Fed’s plan to buy mortgage bonds. The gap between yields on 10-year notes and same-maturity Treasury Inflation-Protected Securities expanded to 2.73 percentage points on Sept. 17, the widest since May 2006.

The so-called break-even rate, which measures how much traders anticipate consumer prices will rise over the life of the debt, was at 2.42 percentage points today, little changed from the end of last week.

Demand to protect against higher long-term bond yields over the next six months has been static since the Fed announcement, Barclays Plc data show.

The figures measure what traders call the payer skew using options on interest-rate swaps. The skew typically widens when traders anticipate a rise in yields as they seek to hedge the value of their holdings.

It’s now 25 cents for the shorter term, about unchanged from December, while it’s 89 cents for options that mature in 2015, up from 80 cents at the end of 2011. Each 10 cents represents $100,000 of bonds.

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