| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Fed Ends Treasury Buys That Capped Rates, Stabilized Housing |
Oct. 29 (Bloomberg) -- The Federal Reserve completed its $300 billion Treasury purchase program today amid signs the seven-month buying spree helped stabilize the housing market and limited increases in borrowing costs.
Yields on the benchmark 10-year note, which help determine rates on everything from mortgages to corporate bonds, never rose above 4 percent after the central bank began acquiring the debt. They are less than half a percentage point higher than the day before the program was announced on March 18, even though the U.S. sold a record $1.25 trillion in notes and bonds, more than double the amount in the year-earlier period.
“The Fed’s purchases likely restrained rates from rising faster during the April through June period when 10-year notes went to about 4 percent,” said George Goncalves, chief fixed- income rates strategist in New York at Cantor Fitzgerald LP, one of the 18 primary dealers of U.S. government securities that trade with the Fed.
The purchases were the first of U.S. Treasuries by the central bank to keep borrowing costs low since the 1960s. The Fed joined its counterparts in the U.K. and Japan in extraordinary debt-buying programs, broadening efforts to unlock credit and end the worst recession since the 1930s after cutting the benchmark U.S. interest rate to a range of zero to 0.25 percent.
Final Purchase
The Fed bought $1.936 billion in debt today through eight securities maturing from December 2013 to September 2014, according to a Federal Reserve Bank of New York statement.
Longer-maturity Treasuries rallied the most since 1962 when the Fed said March 18 it would start buying the securities. That day, Treasury 10-year yields fell almost half a percentage point to 2.52 percent as the Fed surprised investors by expanding the debt purchase portion of its so-called quantitative easing policy, which already included $1.45 trillion of agency and mortgage-backed debt.
While yields subsequently rose to an intraday high of 4 percent on June 11, they have since fallen back, to 3.47 percent today, according to BGCantor Market Data.
Demand is returning to housing after the industry shaved an average of 1 percentage point from gross domestic product each quarter since the start of 2006. Sales of existing U.S. homes surged a record 9.4 percent in September to a 5.57 million annual rate, the highest in more than two years, the National Association of Realtors in Washington said Oct. 23.
Mortgage Rates
Mortgage rates for 30-year fixed home loans averaged 5 percent in the week ended Oct. 22, down from as high as 6.63 percent last year, according to McLean, Virginia-based Freddie Mac. The rate was 5.05 percent in March.
Corporate bonds yield 5.9 percent on average, down from 10.3 percent in March, according to Merrill Lynch & Co. index data. Borrowers have sold $1.11 trillion in U.S. corporate bonds in 2009, the fastest pace on record, according to data compiled by Bloomberg.
Fed Chairman Ben S. Bernanke and his fellow policy makers indicated last month for the first time since August 2008 that the economy is accelerating, even as they recommitted to keep rates “exceptionally low” for an “extended period.”
The Commerce Department said today that the U.S. economy grew in the third quarter for the first time in more than a year. Gross domestic product expanded at a 3.5 percent pace from July through September, exceeding the median estimate of economists surveyed by Bloomberg News, after contracting in the previous four quarters.
‘Good Time’
“The Fed also happens to be exiting the Treasury market at a good time,” Goncalves added. “Other markets, such as equities, which performed well due to the expansion of the Fed’s balance sheet are retreating and that will provide a backstop for the Treasury market.”
The Standard and Poor’s 500 index of stocks, which rallied 57 percent from a 12-year low on March 9, has slipped 3.5 percent from this year’s high on Oct. 19. Speculation the gains outpaced the prospects for earnings and economic growth has weighed on share prices this month.
Fed policy makers said at their August Federal Open Market Committee meeting they would slow the pace of Treasury purchases in a effort to “promote a smooth transition in markets.” The program was originally scheduled to end last month.
Bond Rally
“Yields rallied when the Fed said they wouldn’t be buying more Treasuries because of a decline in inflationary risks associated with the perceptions that the Fed was monetizing the government debt,” said Michael Pond, interest-rate strategist in New York at primary dealer Barclays Plc. “Foreign investors had begun to be spooked by those risks during the second quarter.”
Policy makers likely realized that, by concentrating purchases in mortgage-related debt, “they could more directly influence consumer borrowing costs in specific areas,” Pond said.
The difference in yield between 10-year Treasury Inflation Protected Securities and 10-year notes is 1.97 percentage points, compared with an average of 2.18 over the past five years. The gap, known as the breakeven rate, suggests investors expect inflation to remain low over the life of the securities.
Fed purchases have helped buttress demand as the U.S. sells record amounts of debt to finance a budget deficit that exceeds $1 trillion for the first time. Total sales of Treasuries will increase to $2.38 trillion in the fiscal year that began Oct. 1, from $1.81 trillion in the prior 12 months, primary dealer Goldman Sachs Group Inc. said in a report on Oct. 20.
‘Increased The Confidence’
Bids at yesterday’s record $41 billion sale of five-year notes exceeded the amount offered by 2.63 times, the highest so- called bid-to-cover ratio since October 2007. The two-year notes sold the day before drew the strongest demand since August 2007.
“Having the Fed buy $300 billion in Treasury debt has supported the market,” said Ward McCarthy, chief financial economist at primary dealer Jefferies & Co. in New York. “Knowing that the Fed has been on the buy-side of the market increased the confidence level of private sector investors in owning Treasuries.”
To contact the reporter on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net
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