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Treasuries Fall; Federal Reserve May Take Steps To Boost Growth

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http://www.bloomberg.com/apps/news?pid=206...&refer=home

March 11 (Bloomberg) -- Treasuries fell as Asian stocks rallied on speculation the Federal Reserve will introduce new measures to spur lending and avoid a recession.

Ten-year notes snapped a three-day gain and Asian stocks erased losses as Pacific Investment Management Co., which manages the world's largest bond fund, said that the Fed should start buying so-called agency mortgage-backed securities to stabilize the market. Futures traders have begun pricing in the chances of a 100 basis point cut in the Fed's benchmark rate on March 18.

``The Fed is trying everything it can to help the economy,'' said Kenny Borowicz, a bond futures broker at MF Global Singapore Ltd., part of the world's largest broker of exchange-traded futures and options contracts. ``As stocks have come back, Treasuries have slipped.''

The 10-year note's yield rose 3 basis points, or 0.03 percentage point, to 3.49 percent as of 7:58 a.m. in London, according to bond broker Cantor Fitzgerald LP. The price of the 3 1/2 percent security due in February 2018 fell 1/4, or $2.50 per $1,000 face amount, to 100 2/32. The two-year yield climbed 6 basis points to 1.55 percent.

Ten-year yields will advance to 3.58 percent by the end of the second quarter, according to 71 analysts surveyed by Bloomberg News, with the most recent forecasts given the heaviest weightings. The two-year rate will reach 1.98 percent.

Bear Stearns

The so-called TED spread, measuring the difference between what banks and the government pay for three-month loans, narrowed to 1.47 percentage points from 1.58 percentage points yesterday. The difference was 1.63 percentage points on March 6, the widest this year.

The three-month rate for dollars yesterday declined 4 basis points to 2.90 percent, the lowest level since February 2005, the British Bankers' Association said. The overnight rate was little changed at 3.10 percent.

The Fed has auctioned $160 billion in temporary loans to financial institutions in six Term Auction Facility operations since December and on March 7 said it would add additional funds to the banking system. The U.S. central bank also introduced a discount window for banks in an attempt to ease the credit crisis.

A report in the Wall Street Journal today said the Fed may consider lending directly to financial institutions other than banks and also purchase debt from Fannie Mae and Freddie Mac, the largest U.S. mortgage finance providers.

Early Gains

U.S. notes were supported in early Asian trade by speculation writedowns on securities tied to subprime mortgages spurred investors to seek the relative safety of government debt. Regional shares initially fell on speculation that Bear Stearns Cos. lacks sufficient access to capital. A spokesman for the second-largest underwriter of mortgage-backed bonds said yesterday the rumors were false.

Interest-rate futures show a 10 percent chance the Fed will cut by 1 percentage point its overnight target lending rate between banks to 2 percent next week. The rest of the bets are for a 75 basis point cut.

``Investors are going for safe bets and we expect to see another rally in Treasuries,'' said Jeremy Wu, who manages $1 billion of U.S. bonds in Taipei at Shinkong Life Insurance Co., Taiwan's second-largest life insurer. ``The market expects bad news to overwhelm good news from financial companies.''

Ten-year yields may fall to 3.3 percent this year because investors are more concerned that the expansion will slow rather than inflation risks, Wu said.

The panic is really setting in across the pond. Is there ANY precedent for the Fed lending to non-banks?

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Ten-year yields may fall to 3.3 percent this year because investors are more concerned that the expansion will slow rather than inflation risks, Wu said.

Only the dumb investors. Others are getting out of the dollar altogether.

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Only the dumb investors. Others are getting out of the dollar altogether.

... or think they are, in the swaps market. Who is providing all these USD hedges anyway, and why haven't they gone bang yet?

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Can someone explain how pushing the price of everything through the roof will "boost growth"?

"Growth", in Fed terms, is measured by the rise and fall of asset values. Extradry Martini has been banging on about this for a while now in his thread(s).

You, he, (and the bond market makes three) are right - this "growth" is illusory. Eventually GDP contraction will manifest, even in the face of any permanently high plateau (to borrow a phrase) in asset values. This is the 1931 scenario that we're all currently heading toward, like lemmings.

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  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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