MarketWatch Article 2-Dec-08 06:10 pm
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Treasurys gain as focus returns to Fed purchases
SAN FRANCISCO (MarketWatch) -- Treasurys on Tuesday extended a rally that's taken yields to record lows, as investors anticipated the Federal Reserve would buy up more bonds to push down interest rates.
The benchmark 10-year Treasury bond came back from an early morning loss to gain 0.8% while yields , which move in the opposite direction than prices, slid 6 basis points to 2.678%.
The two-year note's yield fell 2 basis point at 0.8891%, pushing the level further under the fed funds target rate of 1%. Yields on the two-year Treasury note often anticipate levels of fed funds.
Bonds had given up some of the prior session's gains at the open, sending yields higher, as stocks rebounded and bond investors took profits. The Dow Jones Industrial Average closed up 3.3% and the S&P
500 rose nearly 4%. Read Market Snapshot.
After Monday's bond rally, "we saw some profit-taking this morning in treasurys," said Kevin Giddis, head of fixed income at Morgan Keegan in Memphis, Tenn.
But those trends reversed around midday as traders again returned to expectations the Fed would become a buyer of Treasurys and debt issued by government-sponsored agencies such as Fannie Mae and Freddie Mac.
"Anytime you have the government buying Treasuries or agencies, people try to get in front of it," Giddis said.
Representatives from the New York Fed met with primary dealers Tuesday to discuss technical details of a trading platform to buy and sell agency debt, said NY Fed spokesman Andrew Williams.
The Fed is expected to start buying GSE debt on Friday, part of an $800 billion plan to buy mortgage-backed securities, asset-backed securities and other debt spurned by investors during the credit crunch. See full story.
The 30-year bond yield fell 5 basis points Tuesday to 3.1662%.
