U.S. Government Bonds Decline After Fed Moves to Stabilize Markets
September 19 2019 - 11:53AM
Dow Jones News
By Daniel Kruger
U.S. government bond prices slipped Thursday after the Federal
Reserve added $75 billion to the financial system to stabilize
short-term money markets in its third such operation this week.
The yield on the benchmark 10-year Treasury note was a recent
1.787%, according to Tradeweb, compared with 1.777% Wednesday.
Yields, which climb when bond prices increase, edged higher amid
signs that the Fed's injection of reserves had calmed markets and
held down the rate that lenders were charging in the market for
overnight repurchase agreements, or repos. Banks bid for $83.875
billion in reserves, $8.875 billion more than the amount offered by
the Fed, using collateral in the form of Treasury and mortgage
securities.
The rate to borrow cash overnight using Treasury securities as
collateral surged starting late Monday as the amount of cash
available to lend was exceeded by the demand to borrow it.
Overnight rates reached as high as 10% Tuesday until the Fed added
money into the repo market, leading to a decline in rates, traders
said.
The overnight repo rate for Treasury collateral was 2.25%
Thursday morning, analysts said.
That rate "relative to recent activity is good, but relative to
the fact that the Fed cut interest rates, is not great," said
Thomas Simons, a money market economist at Jefferies Financial
Group. The Fed's repo operations "have clearly helped," he
said.
With the Federal-funds rate now set at a target range of 1.75%
to 2%, an overnight repo rate of 1.9% would be closer to typical
during calmer market conditions, Mr. Simons said.
The Fed's cash infusion Thursday followed a decision Wednesday
to lower interest rates for the second time this year, as policy
makers loosened monetary policy seeking to support the economy.
The WSJ Dollar Index, which measures the U.S. currency against
16 others, declined 0.1% to a recent 91.30 as investors bet that
the Fed's rate cuts would sustain the expansion in the U.S.
economy, analysts said.
Federal-funds futures, which investors use to bet on the
direction of central bank policy, show roughly 2-in-3 odds that the
central bank will cut interest rates at least once more before the
end of the year, according to CME Group data.
Write to Daniel Kruger at Daniel.Kruger@wsj.com
(END) Dow Jones Newswires
September 19, 2019 12:38 ET (16:38 GMT)
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