US Treasurys rise on Fed plan to buy more bonds

Associated Press Published: September 13, 2012
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Treasury prices rose Thursday after the Federal Reserve said it will do more bond-buying to boost the lagging economy.

Fed policymakers said the central bank will spend $40 billion a month to purchase mortgage securities because the economy is too weak to reduce high unemployment. The program does not have an end date.

The Fed also extended its pledge of super-low interest rates into 2015 and promised to keep "highly accommodative" monetary policy in place even after the economic recovery strengthens.

When the Fed enters the market for Treasurys, demand increases. Higher demand drives Treasury yields lower, making the investments less attractive in the long run. The goal is to encourage investment in higher-risk assets like stocks.

In the short term, traders often try to front-run the Fed by stocking up on Treasurys before the Fed starts buying. Once it does, people holding Treasurys have a guaranteed buyer.

The price of the 10-year Treasury note rose 25 cents for every $100 invested, pushing its yield down to 1.73 percent late Thursday from 1.76 percent late Wednesday.

The price of the 30-year Treasury bond fell 31 cents for every $100 invested, pushing its yield up to 2.94 percent from 2.92 percent late Wednesday.

The yield on the two-year Treasury note rose to 0.26 percent from 0.25 percent late Wednesday.

The yield on the three-month Treasury bill was unchanged at 0.10 percent.


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