Treasury Rally Puts 2-Year Yield at New Low --- Government Bonds Draw Buyers on Expectation That the Fed Will Resume Asset Purchases as the Recovery Wavers
Treasurys and mortgage-backed securities gained Tuesday as weak economic data further fanned expectations that the Federal Reserve may need to restart its asset purchases to support the economy.</br></br>The two-year yield was pushed down to a record low of 0.515% at one point, as the price rose, after surprisingly weak reports on consumer spending, pending home sales and factory orders.</br></br>Talk that the Fed could revive its bond purchase program was set off by a Wall Street Journal article that said policy makers will consider changing the way the bank manages its securities portfolio at next week's meeting. The Fed could use the cash from its maturing mortgage bond holdings -- about $200 billion in 2011 -- to purchase new mortgage bonds or Treasurys.</br></br>"While the technical impact of rolling MBS proceeds into new Treasurys would not be large, it is a signal to the market that the Fed is concerned and willing to do more to support the economy," said John Briggs, U.S. interest rate strategist at RBS Securities Inc. in Stamford, Conn. "It will push even further out the date for the first Fed rate hike," and lower rates overall.</br></br>The Fed has already pledged to keep rates ultralow for an extended period which has helped keep Treasurys yields low and borrowing costs down for consumers and corporations. The two-year note's yield, among the most sensitive to changes in official rate policy outlook, has consistently hit fresh record lows over the past two weeks.