Long-term Treasury bond yields dive on new Fed plan


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Long-term Treasury bond yields are plummeting Wednesday after the Federal Reserve confirmed it would shift more of its mammoth Treasury portfolio toward longer-term securities.

Although the Fed’s decision, announced in its post-meeting statement, had been expected, the volume of purchases planned in 20- to 30-year bonds was larger than the market had anticipated.


So some investors and traders are pouring into 30-year T-bonds, driving yields down dramatically. The yield on the bond was at 3.03% at about noon PDT, down from 3.20% on Tuesday and the lowest since January 2009.

The 10-year T-note, a benchmark for mortgage rates, also was lower: It fell to 1.88%, down from 1.94% on Tuesday and a new generational low.

Over the next nine months, the Fed said it plans to sell $400 billion of the shorter-term Treasuries in its $1.66-trillion portfolio and use the proceeds to buy bonds maturing in between six and 30 years. The goal: pull down longer-term interest rates in general -- such as on mortgages, corporate and municipal bonds -- as another way to try to bolster economic growth.

“This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” the Fed said in its statement.

With Treasury yields already so low, the question is how much further they can drop. For the moment, bond buyers seem to think long-term rates still have plenty of room to go lower.

Meanwhile, shorter-term Treasury yields are up modestly, reflecting the Fed’s plans to dump more of those securities on the market. The two-year T-note is at 0.20% vs. 0.16% on Tuesday; the five-year T-note is at 0.87% vs. 0.84%.



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-- Tom Petruno