The Federal Reserve is today scheduled to buy up to $1.75 billion of Treasuries due from February 2036 to February 2043 as part of its plan to put downward pressure on borrowing costs through asset purchases, known as quantitative easing.
Minutes of the Fed’s March meeting released on April 10 showed several members of the Federal Open Market Committee “thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end.”
Purchases of existing U.S. homes rose to a 5 million annualized rate in March, the fastest since November 2009, according to the median estimate in a Bloomberg News survey before the National Association of Realtors releases the report on April 22. Commerce Department data the following day will show sales of new houses climbed last month to an annual pace of 419,000 from 411,000 in February, a separate survey showed.
The 10-year break-even rate, a measure of inflation expectations derived from the difference between yields on conventional Treasuries and index-linked securities, was at 2.31% after declining to 2.25% yesterday, the lowest level since Sept. 4.
Slowing inflation and a decline in commodity prices will benefit longer-maturity bonds, according to Barclays Plc.
“With long-term inflation expectations having fallen quite sharply, we believe the long end is again looking attractive,” Anshul Pradan, a debt strategist at Barclays in New York, wrote yesterday in a note to clients.
Barclays recommends investors bet 30-year Treasury yields will decline relative to seven-year ones, resulting in so-called flattening of the yield curve.
A yield curve is a graph charting the rates of bonds of a similar type with different maturities. It flattens when yields on longer-maturity bonds fall, those on shorter-dated debt rise, or when both occur at the same time.
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