After lingering in negative territory throughout much of the trading day on Tuesday, treasuries showed a substantial upward move going into the close. The rally came after the Federal Reserve revealed that it plans to begin buying long-term treasuries on Wednesday.
The benchmark ten-year note moved sharply higher in the latter part of the session, ending the day modestly higher. Subsequently, the yield on the ten-year note closed down less than a basis point at 2.654 percent after reaching a high of 2.748 percent.
Following the news from the Fed, the thirty-year bond showed a particularly strong upward move, driving the yield on the bond down 8.7 basis points to 3.606 percent.
Tuesday afternoon, the Federal Reserve Bank of New York released a tentative operation schedule for its purchases of longer-dated treasury securities through April 3, 2009, saying the first outright treasury coupon purchase would be conducted on Wednesday
The New York Fed said that the first operation would purchase treasuries maturing between February 2016 and February 2019.
Last Wednesday, the Federal Open Market Committee, the monetary policy setting arm of the Federal Reserve, revealed that it decided to buy up to $300 billion of longer-term treasury securities over the next six months in order to help improve conditions in private credit markets.
With the news of the scheduled purchases, traders largely shrugged off the results of the Treasury Department's auction of $40 billion worth of two-year notes. The auction drew a yield of 0.949 percent and a bid-to-cover ratio of 2.71.
The $40 billion two-year note auction is part of a record auction of $98 billion worth of notes this week. The Treasury is due to auction $34 billion worth of five-year notes on Wednesday and $24 billion worth of seven-year notes on Thursday.
While there were no major economic reports released today, trading on Wednesday could be impacted by the release of reports on durable goods orders and new home sales. Traders are also likely to keep an eye on the results of the five-year note auction.
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