Treasuries rise

The prices of long-dated US Treasuries rose on Monday after the Federal Reserve completed its first Treasury purchases for the week, as traders placed bets on the size of the Fed's upcoming debt buys. The Federal Reserve Bank of New York announced on Monday it had increased the size of its purchases of Treasuries with maturities of between six and 10 years by half compared with last month.
"While the size shouldn't have been a surprise to anybody, there did seem to be a few folks looking for smaller numbers," said Michael Cloherty, head of US rates strategy at RBC Capital Markets in New York. The Federal Reserve began reinvesting the proceeds of its mortgage-backed securities holdings in August through new Treasury purchases, thereby re-entering the Treasury market without expanding its balance sheet. The Fed said on Monday it would execute Treasury purchases on Wednesday and Friday.
"I think that the market is anticipating that they're going to buy $5 billion in the next two sessions," said Raymond Remy, head of US fixed-income strategy at Daiwa Securities in New York. "The biggest reason is there's not supply this week in Treasury notes," he said of the price gains in the long end of the yield curve.
The 10-year Treasury note added 9/32 in price to yield 2.71 percent, down from 2.74 percent at Friday's close. The 30-year bond gained 16/32 to yield 3.88 percent, down from 3.90 percent late on Friday. The gains at the long end of the Treasury curve unwound a bit of the curve steepening that resulted from Japan's intervention in the foreign exchange market last week. Bonds avoided taking a significant hit from an announcement by the National Bureau of Economic Research (NBER) that the US recession ended in June 2009.
NBER, considered the arbiter of US recessions, said it chose that month based on examination of data including gross domestic product, employment and personal income.
McCarthy called much of the speculation about the Fed implementing more quantitative easing at the September 21 policy meeting or at the November or December meetings unwarranted.
"The FOMC will not announce another massive expansion of the balance sheet through asset purchases, but may attempt to frame financial and economic conditions that would warrant another massive expansion of the balance sheet," he said. But the Fed could amend the "extended period" language, the term of art the Fed has been using to describe the timeframe in which interest rates will remain exceptionally low, putting it into a broader context to reflect the fact that targeting the fed funds rate is no longer the Fed's primary policy tool.
The corporate issuance that has recently created some volatility could subside this week, allowing the market to focus on the Fed and economic data, traders said. Traders said technical resistance for the 10-year Treasury note still remained in the area between 2.71 and 2.69 percent and support between 2.76 and 2.80 percent.
The National Association of Home Builders Wells Fargo housing market index read 13 for September, unchanged from August. The news had no discernible market impact. Of more interest is Tuesday's housing starts report which is expected to show that housing starts occurred at a 0.550 million seasonally adjusted annualised rate in August, up slightly from an annualised rate of 0.546 million in July.