Treasury prices climb on growing expectation Federal Reserve will start buying bonds

Wednesday, September 22, 2010

Treasurys rise as investors bet Fed will buy bonds

NEW YORK — Longer-dated Treasurys rose Wednesday, driving interest rates lower, as investors bet the Federal Reserve will expand its purchases of bonds.

The central bank said after its regular meeting Tuesday afternoon that it would take action if needed to increase economic growth. The economy is continuing to grow but at a sluggish pace.

While the Fed did not provide any specifics about potential programs to spark economic growth, analysts widely expect any plan would include the central bank expanding its purchases of Treasury bonds. Buying bonds would drive their yields lower, and in turn push interest rates down, raising the incentive to borrow.

The Fed bought $2.07 billion of Treasurys Wednesday as part of its ongoing program in which it replaces expiring mortgage bonds it already holds without increasing the total value of bonds in its portfolio.

The yield on the 10-year Treasury note, which moves opposite its price, slipped to 2.55 percent Wednesday from 2.58 percent late Tuesday. Its yield is often used to set interest rates on mortgages, consumer loans and corporate debt.

The price for the 10-year note that matures in August 2020 rose 18.7 cents to $100.56.

In other trading, the yield on the 30-year bond fell to 3.74 percent from 3.79 percent. The price for 30-year bonds that mature in August 2040 rose 75 cents to $102.28.

The price for two-year notes that mature in August 2012 was $99.87. the yield was 0.44 percent.

The three-month T-bill paid a 0.15 percent yield, with a 0.16 percent discount.

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