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Fed's plan pushes short-term Treasurys higher

Fed's plan pushes short-term Treasurys higher

Short-term Treasurys jumped after the Federal Reserve unveiled details of its plan to boost the U.S. economy.
The Federal Reserve said it would begin buying an extra $600 billion in Treasury bonds through June of next year, a slightly larger plan than what many expected to see. The Fed's move is meant to push long-term interest rates lower, encourage spending and ultimately lead companies to begin hiring again.
"Bottom line: The Fed delivered more than the market expected," said David Ader, head of government bond strategy at CRT Capital. "Both in terms of size, $600 billion, and longevity. This is not a month-by-month review. We now have eight months ahead of us where we know the Fed will be buying."
Most on Wall Street had been banking on a $500 billion plan to start, with $100 billion rolled out from month to month. At the high end, Goldman Sachs economists said the Fed would wind up with a total package of $2 trillion.
Traders also expected the Fed to look at economic data each month before buying bonds. Instead, the Fed made a firm pledge to buy $75 billion each month.
After the announcement, the yield on the five-year bond fell to 1.10 percent from 1.16 percent late Tuesday. The two-year yield slipped to 0.34 percent from 0.35 percent the previous day.
The Fed's New York branch released a statement adding details to how the bond-buying would work.
The bank would aim 46 percent of its purchases at Treasurys maturing between 5.5 years and 10 years and 45 percent at those maturing from 1.5 years to 5.5 years. The Fed said it would only direct 4 percent of its purchases toward bonds maturing between 17 and 30 years.
That announcement hit the long end of the Treasury market. The 10-year yield rose to 2.60 after the announcement, and the yield on the 30-year bond climbed to 4.06 percent. Both had been trading lower late Tuesday, with yields of 2.59 percent and 3.93 percent, respectively. Speculation had grown in the bond market this week that the Fed would take aim at 30-year bonds.
Treasury prices were rising and yields falling ahead of the announcement. In the half hour beforehand, the 10-year note was trading at 2.53 percent and the 30-year at 3.86 percent.


Updated : 2021-05-15 01:50 GMT+08:00