Two-Year Treasuries Rise as Stocks Fall, Fed Buys Back U.S. Debt

For a third day treasury two-year notes has shown a rise as the Federal Reserve bought $7 billion in government securities and decline equities stoked demand for the relative safety of fixed-income assets.

The two-year note yield has been pushed by the advance to the lowest level in more than a month. Before this week’s auction of the securities there has been a decline in ten-year notes, and in more than two weeks the yield gap with two- year debt was at the steepest level. In June there has been a contraction in the U.S. service industries from retailers to homebuilders for the ninth straight month.

According to BGCantor Market Data, there has been a fall of five basis points in the two-year note yield, or 0.05 percentage points, to 0.94 percent at 12:50 p.m. in New York. The rate has touched 0.9252%, which has been the lowest level since June 4. The price of the 1.125% security due in June 2011 has increased 3/32, or 94 cents per $1,000 face amount, to 100 12/32. There has been an increase of two basis points in 10-year note yield to 3.52%.

There has been an increase 2.60 % point in the difference in yield between 2- and 10-year Treasuries, since June it is the biggest gap on an intraday basis.

Fed Buybacks

Today $7 billion of Treasuries have been bought by the Fed which will mature in between January 2014 and March 2016. This has been a part of its program according to which it has decided to purchase up to $300 billion in debt to cap borrowing costs as the government sells record amounts of debt just in order to spur growth and service deficits. Through the operations the central bank has bought $197.723 billion in U.S. debt, which will start on March 25.

TIPS Auction

Today there has been a fall of 1.62% points today in the difference between 10-year Treasury Inflation Protected Securities and nominal debt of the same maturity; this is the lowest level since May 19. Trader’s expectations for inflation over the life of the securities have been represented by the yield gap.

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