Funding Treasuries

Daily Stat | February 01, 2013 | Topics: Fixed Income,  Economic Outlook 

$45 Billion: Amount of Treasuries the Federal Reserve is buying each month

We expect Treasury yields to rise in a slow and erratic process over 2013, climbing to perhaps 2.25%. One of the main reasons yields are unlikely to experience a more significant increase is that central banks remain major purchasers of Treasuries. The US Federal Reserve is still buying $45 billion worth of Treasuries each month and will likely continue to do so at least through the middle of this year. Other central banks, including those in China and Japan, are also still large buyers of Treasuries. Additionally, institutional investors such as pension funds and commercial banks are also continuing to purchase Treasuries, which they can use as a hedge against their liabilities. Finally, it's noteworthy that while US Treasuries are still continuing to be issued, the net supply of bonds has been shrinking, meaning that the supply/demand dynamic has been propping up Treasury prices. The bottom line is that while a slowly improving economy is putting upward pressure on rates, there are enough competing sources of downward pressure that should prevent yields from rising too dramatically or too quickly.

Source: BlackRock, January 2013

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