Bernanke Hawkish, Treasury Yields Down From 2-Year Highs

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Treasury yields have fallen from the highs recorded in 2011 owing to expectations that Federal Reserve will begin to slowdown bond purchases, says a report from Bloomberg.

Bernanke Hawkish, Treasury Yields Down From 2-Year Highs

Bernanke’s Comments “Hawkish”

This week, Benchmark 10-year (USGG10YR) yields recorded the highest jump in a single day, since October 2011. The jump in yield follows an announcement made by Bernanke on June 19 that the central bank may put an end to the $85 billion monthly bond purchase program under quantitative easing in mid-2014.

Thomas di Galoma, head of U.S. rates sales at ED&F Man Capital Markets in New York, said “We’ve had a pretty decent selloff, and it’s probably time to put money in the bond market.” This may not be good for markets as the economy is still struggling with 1.5 to 2 percent growth and inflation is also high, he added.

After the meeting of the Federal Open Market Committee, Bernanke said that the decision to curtain the bond purchases will depend on the performance of the economy. For this year, policy makers are expecting a growth of around 2.6 percent and for 3.5 percent in 2014.

One of the experts believes that Bernanke’s comments are proving to be “hawkish”, and the market is waiting for the “next round of economic numbers” to evaluate the liquidity position.

Treasury Yield Numbers So Far

As per the data from Bloomberg Bond Trader prices, in the morning, 10-year yield was down by four basis points, or 0.04 percentage point to 2.38 percent before rising one basis point to 2.43 percent. The 1.75 percent note, which is due in May 2023, fell 1/8, or $1.25 per $1,000 face amount, to 94 2/32. On June 19, yield rose 17 basis points before closing at 2.47, which is the highest since Aug. 8, 2011. This week, the yield has gained 30 basis points, the biggest since 2011.

The 30-year yield, which fell five basis points earlier, lost one basis point to 3.5 percent. In the last two days, the yield has gained 17 basis points to 3.55 percent, which is the highest since September 2011.

Every month, $45 billion of Treasuries and $40 billion of mortgage securities is bought by Fed in order to exert a pressure on the borrowing cost in its third round of asset purchases. As per the Fed Bank of New York’s website, the Fed will acquire around $1.75 billion of Treasuries today, due from February 2036 to May 2043.

Interest Rate

Forty-four percent of 54 economists who were polled by Bloomberg said that the Fed will reduce its $85 billion in monthly bond purchases by $20 billion in a policy meeting to be held on Sept 17-18. The poll was conducted after the conference by Bernanke, which was held on June 19.

The target rate has been set in the range of zero to 0.25 percent for overnight lending amongst banks since December 2008.

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