At its last meeting, which ended on Sept. 13, the Fed announced it will buy $40 billion of mortgage-backed securities a month to put downward pressure on borrowing costs. It also said it will probably keep its target for overnight borrowing between banks near zero at least through the middle of 2015.
All 21 primary dealers that trade with the Fed expect it to expand stimulus measures before year-end to include purchases of government securities, according to a survey of the bond traders last week by Bloomberg News.
The Fed is also swapping short-term Treasuries in its holdings for longer-term securities to cap yields as part of its efforts to spur the economy. The central bank plans to sell as much as $8 billion of Treasuries due from June 2015 to August 2015 today, according to the Fed Bank of New York’s website.
A report on Oct. 25 will show orders for durable goods increased by 7.5 percent last month, a separate survey predicts.
Moody’s, a week after deciding against cutting Spain’s credit-rating to below investment grade, lowered Catalonia and four other Spanish regions yesterday.
Spain’s gross domestic product shrank 0.4 percent from the previous three months, matching the contraction of the second quarter, the Bank of Spain said in Madrid today. That compares with a median forecast for a 0.7 percent drop in a Bloomberg News survey of 10 economists.
Treasuries have returned 1.5 percent in 2012, according to Bank of America Merrill Lynch indexes. Bonds in an index of U.S. investment-grade and high-yield debt rallied 11 percent.
The difference between five-year interest-rate swaps and same-maturity Treasury yields narrowed to as little as 9.8 basis points, the least since March 2010.
Investors use swaps to exchange fixed and floating interest-rate obligations. The spread between the fixed component and the Treasury rate narrows as demand for higher- yielding assets increases.