Treasuries gain on Fed bond purchase hopes

US Treasuries prices gained on Friday and benchmark note yields again fell below 2 percent after a weak jobs report increased the likelihood that the Federal Reserve would make new bond purchases. The unexpectedly weak monthly report, showing zero employment growth in August, fuelled expectations the US central bank would need to intervene in an effort to stop the economy from falling back into recession.
Goldman Sachs and some other US primary dealers - big Wall Street firms that do business directly with the Fed - forecast the Federal Open Market Committee might extend the maturity of the Fed's $1.65 trillion Treasuries holdings after its September 20-21 policy meeting.
"The worst view is confirmed on the employment front. Other information this week was much more mixed," said Jim Golden, head of Treasury trading at Jefferies & Co in New York. "I think this is going to be new wind in the sails of the Treasury market because of the anticipation the Fed will do further accommodation," he said.
The US economy has been weakening since the Fed completed its $600 billion in bond purchases at the end of June, its second program of quantitative easing. Benchmark 10-year note yields fell below 2 percent for the first time since August 18, when they dropped as low as 1.976 percent for the first time in at least 60 years. The debt was boosted by a belief that the central bank will sell its shorter-dated Treasuries and buy longer-dated issues with the goal to "twist" the long end of yield curve lower.
"There have been a lot of trades being put on as people look to jump ahead of a move from the Fed," said Thomas Roth, executive director of US government bond trading at Mitsubishi UFJ Securities USA in New York. The 10-year note yields traded as low as 1.987 percent on Friday. Thirty-year bonds also soared more than three-points in price on speculation over longer-dated debt purchases. The bond yields dropped to 3.32 percent, the lowest since January 2009. Some traders raised doubts, however, over whether the Fed would extend that far out the yield curve in any new purchase program. The central bank is seen as most likely to buy notes maturing in seven- and 10-years.