Most US Treasuries fell narrowly on Wednesday, except for 30-year bonds, which rose on news the Federal Reserve plans to buy more of them as it extends monetary stimulus to a US economy seemingly at risk of stalling. The Fed's decision to renew its efforts to keep borrowing costs low by selling short-term bonds in order to buy longer-dated debt lifted 30-year bond prices from their lows and weakened prices of shorter maturities.
The difference between intermediate and long-term rates narrowed. "The curve flattened from five-year maturities on out," said John Canavan, market analyst at Stone & McCarthy Research Associate in Princeton, New Jersey. Thirty-year bonds rose 11/32 in price; their yields fell to 2.72 percent from 2.74 percent on Tuesday. The benchmark 10-year note, meanwhile, slipped 5/32, its yield rising to 1.64 percent from 1.63 percent on Tuesday. "The Fed did the minimum in terms of the mechanical aspects of extending Operation Twist, but said they were prepared to take further action as appropriate, which was a major step up from the language they used after their April policy meeting," said Cary Leahey, economist and managing director at Decision Economics in New York.
"April's language said they might manipulate the composition of their purchases, but now they're hinting strongly at QE3," Leahey said, referring to quantitative easing, in which the Fed expands the size of its balance sheet by buying securities. The statement from the Federal Open Market Committee, which formulates Fed monetary policy, said the central bank was "prepared to take further action as appropriate" to help the economy, a line that was not in its April statement. Deutsche Bank Securities chief US economist Joseph LaVorgna said the change in language was important.