Treasury yields at record low as Fed mulls new QE

YIELDS on short-term US Treasury debt fell to a record low yesterday after a raft of negative data heightened expectations that the Federal Reserve may seek to further stimulate the stagnating economy.

Two-year note yields, which move inversely to prices, fell three basis points to 0.53 per cent, after touching a new record low of about 0.51 per cent earlier.

The move came after data from the US Commerce Department showed that the savings rate among US households rose to the highest level in a year in June as income and spending were flat – failing to show growth for the first month since July 2009. The June report was slightly weaker than expected and included downward revisions to figures from April and May. Meanwhile, an index of U.S. pending sales of homes fell 2.6 per cent in June while factory orders declined 1.2 per cent.

According to The Wall Street Journal, given signs the economy is losing momentum, Fed officials are now mulling whether to use cash the central bank receives from maturing mortgage bond holdings to buy new mortgage or Treasury bonds, rather than allowing its portfolio to shrink gradually.