US Treasury rises

20 Mar, 2009

US Treasury debt prices rose on Wednesday in thin trading volume as a fall in US stock markets fuelled safe-haven buying while investors wait for the Federal Reserves policy statement in the afternoon. Bond market analysts are curious whether the central bank, at the conclusion of its two-day policy meeting on Wednesday, will address the possibility of buying longer-dated Treasuries in an effort to lower long-term interest rates.
In the meantime however, Treasuries gained as investors pulled out of higher-risk stocks and moved into the perceived lower-risk of government debt. "The weakness in equities has been sparking a bid (in Treasuries)," said John Canavan, analyst with Stone & McCarthy Research Associates in Princeton, New Jersey.
Benchmark 10-year Treasury notes US10YT=RR were trading 15/32 higher in price for a yield of 2.96 percent, down from 3.01 percent late on Tuesday, while the two-year note US2YT=RR was 2/32 higher for a yield of 1.00 percent, down from 1.03 percent. Treasuries trade volume was about 40 percent below the 20-day moving average as of 10 am Eastern time (1400 GMT), according to ICAP data. The Fed is expected to release its latest policy statement at about 2:15 pm Eastern time (1815 GMT) on Wednesday.
"The markets will be particularly focused on whether or not the Fed advances its commentary regarding quantitative easing in the form of outright Treasury purchases," said Joseph LaVorgna, chief US economist at Deutsche Bank Securities in New York.
The Fed is not expected to change its recommended overnight lending rate between banks, which was lowered to a range of zero to 0.25 percent in December. Treasuries were unmoved by data showing the US consumer price index rose 0.4 percent in February, marking the biggest monthly gain since July, after rising 0.3 percent in January. Analysts had been looking for an increase of 0.3 percent.
Despite the rise last month, inflation was not seen as much of an immediate threat, as price pressure has generally been retreating over the past few months. "Headline consumer inflation jumped in February, lead by a rebound in energy prices," said Steven Wood, chief economist at Insight Economics in Danville, California, adding however that "over the past six months, consumer prices have declined by a sharp five percent". Five-year Treasury notes were trading 7/32 higher in price for a yield of 1.93 percent, down from 1.98 percent late on Tuesday, while the 30-year bond was trading 1-5/32 higher in price for a yield of 3.76 percent from 3.83 percent.

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