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Treasuries Advance as Fed Purchases Bonds Under Operation Twist

Treasuries rose, pushing yields down to almost three-week lows, as the Federal Reserve bought $1.9 billion of Treasuries as part of its plan to extend the duration of is U.S. government debt holdings.

Benchmark 10-year notes fell earlier with German bunds, perceived to be among Europe’s safest debt securities, as Spanish Economy Minister Luis de Guindos said yesterday that his country is analyzing whether to seek a bailout. U.S. bonds were also supported after former Federal Reserve Chairman Paul Volcker said the central bank’s latest mortgage-bond-buying program isn’t creating inflationary pressure.

“We do have a buyback which is where most of the strength is coming from,” Thomas di Galoma, a managing director at Navigate Advisors LLC in Stamford, Connecticut. “Market participants are using any down-tick in the market to be a buyer.”

Benchmark 10-year yields fell one basis point, or 0.01 percentage point, to 1.62 percent at 11:07 a.m. New York time according to Bloomberg Bond Trader prices, after rising to as high as 1.65 percent.

The Fed bought Treasuries maturing from February 2036 to August 2042 as part of its program, known as Operation Twist, to replace $267 billion of short-term debt in its portfolio with longer-term Treasuries in an effort to reduce borrowing costs further and counter rising risks of a recession.

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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