Fast Money’ Recap: Fed
August 10, 2010 by staff
The measure would reduce the amount of Treasuries in the market and could help push down long-term rates on mortgages and corporate debt. The Fed’s hope is that your purchases will help stimulate lending and lead to job creation.
The price of 10-year bond rose 6.25 cents to 106.25 and, while its yield sank to 2.77 percent from 2.83 percent late Monday. Earlier in the session, the yield fell to 2.75, its lowest level since March 2009, when markets were beginning to recover from the financial crisis.
The Fed said economic growth will be “more moderate” than he had thought only seven weeks ago. As expected, the central bank said it would keep its target federal funds rate to zero to 0.25 percent for an extended period. ”
When you restart the programs to encourage small scale, the Fed soothed investors who have grown increasingly anxious as the economic reports have shown that recovery is slowing. But the stock market partially recovered after the announcement as investors recognized that the Fed’s moves are very small and unlikely to have a major impact on recovery.
“Markets are now assessing the Fed’s assessment of recovery and the fact that the monetary stimulus it has done little so far and might not be as constructive as expected,” said John Spinello, bond strategist at Jefferies & Co.
Purchases of debt the Fed plans known as “quantitative easing.” Economists believe the Fed will have about 10 billion and a month to buy the debt. This is a small amount of money compared to the needs of the economy.
The Fed said it would use the revenue it gets from buying mortgage bonds for two years and Treasury bonds to 10 years, and its intention to buy an equal amount of debt as existing bonds mature. The net effect is to maintain constant and 2.3 trillion balance sheet while shifting its holdings of government debt more.
In 2009 and early 2010, the central bank bought and 1.25 trillion in mortgage securities, and 175 billion in mortgage debt of Fannie Mae and Freddie Mac, and $ 300 billion in debt. In March, the Fed stopped buying new mortgages and debt securities of Fannie and Freddie because the economy was clearly in recovery.
In the operations of the other Tuesday, the yield of the two-year Treasury note fell to 0.53 percent from 0.55 percent. Its price rose 3.125 cents to $ 100.188.
The yield on the 30-year bond fell to 4.01 percent from 4.02 percent, while its price rose 28.13 cents to $ 106.375.
The yield on three-month Treasury was unchanged at 0.14 percent. Discount rate was 0.15 percent.
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