Treasury 30-year yields fell to the lowest level in more than a week before the Federal Reserve buys U.S. government debt today and on concern Europe’s rescue of Greece won’t resolve the region’s debt crisis.
The Fed is scheduled to purchase as much as $5 billion of notes due from February 2018 to February 2020 today as part of its efforts to keep borrowing costs down. Policy makers will probably announce a third round of outright purchases in the second quarter, according to Jefferies & Co. Inc., one of the 21 primary dealers that trade with the central bank.
“The Fed wants to keep rates down,” said Roger Bridges, who oversees the equivalent of $16 billion of debt as the Sydney-based head of fixed income at Tyndall Investment Management Ltd., a unit of Nikko Asset Management Co. in Japan. “You’ve got a buyer in the market all the time. I think Treasuries are very expensive.”
U.S. 30-year yields declined one basis point to 3.09 percent as of 11:17 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 3.125 percent security maturing in February 2042 rose 6/32, or $1.88 per $1,000 face amount, to 100 22/32. The rate was as low as 3.088 percent, the least since Feb. 16.
Ten-year yields were little changed at 1.97 percent. They are 30 basis points, or 0.30 percentage point, away from the record low of 1.67 percent set Sept. 23.
Japan’s 10-year yield was unchanged at 0.97 percent.
The Fed is replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to cap borrowing costs under a program it plans to conclude in June.
Chairman Ben S. Bernanke will give his semi-annual monetary policy report to Congress this week. He testifies before House lawmakers on Feb. 29 and the following day to the Senate Banking Committee.
Bernanke may use the speeches to “plant the seeds” for additional bond buying, Ward McCarthy and Thomas Simons, New York-based economists for Jefferies, wrote in a report Feb. 24. The Fed will probably focus its purchases on mortgage-backed securities, acquiring $500 billion to $650 billion of them to support the U.S. housing market, the report said. The central bank will probably also buy long-term Treasuries, it said.
Fed officials aren’t in unanimous agreement on the plan.
James Bullard, president of the Fed Bank of St. Louis, said he doesn’t favor additional debt buying as inflation risks are “to the upside” and a damaged housing market limits the effectiveness of monetary policy. Philadelphia Fed President Charles Plosser said targeting a specific industry such as housing should be left to the U.S. Treasury.
The central bank bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June 2011 to support the economy.
Group of 20 nations rebuffed German-led calls to come to Europe’s rescue as it battles the region’s debt crisis, helping maintain demand for the relative safety of U.S. debt. Officials from the countries met in Mexico City over the weekend.