- 18Oct
NEW YORK (Dow Jones)--Treasury prices pushed up Monday as investors, convinced the Federal Reserve will launch another large-scale bond-buying program in November, took advantage of last week's price drop to stock up on government debt.
Treasurys maturing in the next five to 10 years were leading the charge. In recent trade, the 10-year note was up by 18/32 to 2.502% after rising as high as 2.592% Friday. The seven-year note was up by 15/32 to 1.798% after climbing as high as 1.894% Friday.
The two-year Treasury note was up 1/32 to yield 0.355%, and the 30-year Treasury was 1 3/32 higher to yield 3.922%.
Rick Klingman, managing director of trading at BNP Paribas Securities Corp. in New York, said a bout of foreign buying in thin Monday trade was helping to knock prices higher.
Prices were lifted after the Fed bought Treasurys maturing in the next six to 10 years Monday morning, with money from maturing mortgage bonds. The Fed began buying Treasurys with those proceeds after the last meeting of the policy-setting Federal Open Market Committee. The intent has been to keep its balance sheet stable and rates low as the economy heals.
In its latest Treasury buying operation Monday, the New York Fed bought $6.26 billion in Treasury notes maturing between Oct. 31, 2016, and Aug. 15, 2020, out of $21.836 billion submitted.
Many believe, though, that a larger scale bond-buying program, or so-called quantitative easing, or QE, will be necessary to help the economy as unemployment remains uncomfortably high and as inflation remains low.
"There will be QE, and high, high odds it starts with the Nov. 3 FOMC," said David Ader, head of government bond strategy at CRT Capital Group LLC. Not knowing the size of purchases, time frame or full criteria that the Fed will use to either add to buying or restrain itself, though, makes it "difficult if not impossible to determine value over this timeframe," he said.
Ader cited a range for the 10-year note's yield of 2.50% to 2.60%.
Treasurys prices Monday were also higher as market participants geared up for what will be more than a dozen speaking engagements this week by Fed officials. Market participants will be glued to their remarks, looking for any further clues about the form and size of a bond-buying program.
Monday, Federal Reserve Bank of Atlanta President Dennis Lockhart will speak at 12:30 p.m. EDT on the economy. Tuesday, he will give more remarks, along with five other Fed officials. Market participants will be on alert for any mention of additional bond buying or quantitative easing.
Over the weekend, in comments supporting the case for more QE, Boston Fed President Eric Rosengren said the deflation threat must be countered aggressively. Federal Reserve Bank of Chicago President Charles Evans said the U.S. economy is in a "bona-fide liquidity trap" and that the Fed may have to allow inflation to overshoot levels consistent with price stability.
Most data Monday were bond market friendly. U.S. industrial production slipped in September, reflecting a slowdown in what was a primary driver of growth out of the recession.
Industrial production last month fell 0.2%, the Federal Reserve said. August's production figures were unrevised at a 0.2% increase. Capacity utilization also fell, to 74.7% in September from a revised 74.8% the previous month. Operating rates remain well below the 1972-2009 average of 80.6%.
Meantime, U.S. home-builder confidence rose in October, but continues to languish as the housing market struggles against a months-long oversupply and a jobless rate hovering near a 26-year high. The National Association of Home Builders said its housing-market index rose three points to 16 in October, the first improvement in the index in five months.
A separate report showed that China remained a net buyer of Treasurys in August for a second straight month, amid overall inflows into long-term U.S. assets, the Treasury Department said. China's holdings jumped $21.7 billion to $868.4 billion, remaining ahead of Japan as the largest foreign holder of Treasurys. That followed net purchases of $3.0 billion in July.
