TREASURIES-Yield curve steeper after Fed maintains bond-buying

By Kate Duguid

NEW YORK, Dec 16 (Reuters) – The Treasury yield curve steepened slightly on Wednesday after the Federal Reserve said it would maintain its current bond-buying policy until significant progress in the U.S. economic recovery is made.

Purchases would continue “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals,” the Fed’s rate-setting committee said in a unanimous policy statement after the end of a two-day meeting.

The benchmark 10-year yield US10YT=RR was last up 0.4 basis point to 0.925%, while the 30-year bond yield US30YT=RR was up 0.2 basis points to 1.666%. The move at the long end steepened the yield curve, with the spread between the two- and 10-year yield US2US10=TWEB up 1.3 basis points to 80.2 basis points. The spread between the five- and 30-year yields US5US30=TWEB was up 1 basis point to 129.5.

The majority of the Fed’s purchases of Treasury debt since March have been in shorter maturities, which has helped keep yields at the short end of the curve low and has allowed the longer-dated yields to rise modestly. The continuation of that policy left the curve slightly steeper, on trend with the recent direction of the market.

“This was a very boring statement. For us, that’s not too much of a surprise because we didn’t really see the need for them to do too much more,” said Collin Martin, fixed income strategist at the Schwab Center for Financial Research.

The 10- and 30-year yields have risen by roughly 60 and 100 basis points since they hit all-time lows in March. The increase sparked debate prior to Wednesday’s statement on whether the Fed would purchase more longer-dated debt to cap yields and keep borrowing costs low.

That the Fed did not announce any changes to its bond-buying was largely in line with what the market had expected, though the modest steepening in the curve suggested some investors who were betting the central bank would increase its purchases of longer-dated bonds had unwound some positions.

“It looks like once we saw there was no explicit guidance (on extending the average maturity of bond purchases), yields jumped 3-4 basis points, but only back to the level where they were this morning,” said Martin.

“The fact that there wasn’t going to be a pickup in long-end purchases led (longer-dated yields) a little bit higher, but in the grand scheme of things, it was just a blip.”

December 16 Wednesday 4:01PM New York / 2101 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.0825

0.0837

0.008

Six-month bills US6MT=RR

0.09

0.0913

0.005

Two-year note US2YT=RR

100-3/256

0.119

-0.004

Three-year note US3YT=RR

99-216/256

0.1773

-0.003

Five-year note US5YT=RR

100-6/256

0.3702

-0.005

Seven-year note US7YT=RR

99-220/256

0.6457

-0.002

10-year note US10YT=RR

99-140/256

0.9229

0.002

20-year bond US20YT=RR

98-140/256

1.4593

0.003

30-year bond US30YT=RR

99-8/256

1.6662

0.002

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

8.25

0.25

U.S. 3-year dollar swap spread

6.75

0.25

U.S. 5-year dollar swap spread

6.50

0.25

U.S. 10-year dollar swap spread

-0.25

-0.50

U.S. 30-year dollar swap spread

-27.25

0.25

(Reporting by Kate Duguid Editing by Sonya Hepinstall)

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