Bernanke sedates bond traders seeing Treasuries added to QE3

Bond Predictions

The unemployment rate is above the average of 5.1 percent from January 2000 to mid-2007.

JPMorgan said the so-called fiscal cliff of tax increases and spending cuts will subtract 1 percentage point from growth, double its previous estimate. The largest U.S. bank by assets sees gross domestic product expanding at a 1 percent annual rate in the first three months of 2013, down from a prior forecast of 1.5 percent. In the second quarter, the economy will grow at a 1.5 percent pace, from 2.25 percent.

Bank of America Corp. predicts the Fed will add $45 billion to $60 billion of Treasuries a month, while Barclays expects the purchases will last until June and total $270 billion. Royal Bank of Canada’s RBC Capital Markets unit forecasts $30 billion in monthly Treasury purchases.

Low yields have cut the government’s cost of financing budget deficits exceeding $1 trillion for four straight years, while lowering corporate and consumer borrowing rates. Yields on company bonds fell to a record 3.58 percent last week, from more than 5.6 percent in early 2010, Bank of America Merrill Lynch index data show. Freddie Mac says rates on 30-year mortgages average 3.37 percent, down from 5.21 percent.

Home Sales

Low rates have helped companies refinance debt and bolstered homes sales. Corporate bonds issued globally this year total $3.2 trillion, second only to the $3.32 trillion sold at the same point in 2009, data compiled by Bloomberg show. Sales of previously owned U.S. homes rose in August to the highest level in two years before easing in September, figures from the National Association of Realtors show.

Bernanke said in a speech in August at the Fed Bank of Kansas City’s Economic Symposium in Jackson Hole, Wyoming, that central-bank studies show the cumulative effect of asset purchases have lowered 10-year Treasury yields between 80 and 120 basis points.

The yield on 10-year Treasuries rose three basis points, or 0.03 percentage point, to 1.79 percent at 9:54 a.m. in New York. The price of the benchmark 1.625 percent security due August 2022 fell 7/32, or $2.19 per $1,000 face amount, to 98 17/32.

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