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Market Strategy

Deus Ex Machina

The Fed and the U.S. Treasury Yield Curve

The Fed announced after its August 10 Open Market Committee meeting that it will reinvest principal payments from agency debt and MBS in Treasury securities. The consensus is that this would amount to about US$300 billion of purchases over the next year and this figure sounds reasonable. The Open Market Trading Desk said it will concentrate purchases in the 2-10y sectors of the nominal Treasury curve, but given the already low level of front-end yields it is more likely that purchases will be directed toward the intermediate sector (5-7 years,[...]

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