Treasury yields sink after Fed pledge of low rates

AP News
Posted: Jan 25, 2012 5:03 PM
Treasury yields sink after Fed pledge of low rates

Treasury yields fell Wednesday after the Federal Reserve said it expects to keep its benchmark interest rate near zero until late 2014.

The Fed said it's keeping rates low to help a weak but slowly growing economy. That's a change from the Fed's previous pledge to keep rates near zero until the middle of 2013.

Short-term rates sank after the Fed's statement came out. The yield on the 5-year note plunged to an all-time low of 0.76 percent.

But yields stopped falling soon after the Fed followed its earlier statement with updated economic forecasts. The second release revealed that six of the 17 Fed officials think the central bank should raise interest rates this year or the next.

By the end of the regular trading day, the yield on the 5-year note had inched back up to 0.79 percent, a sharp fall from 0.90 percent late Tuesday. The two-year yield dropped to 0.23 percent from 0.24 percent.

Earlier Wednesday, the Treasury auctioned $35 billion in five-year notes at a yield of 0.89 percent, well below the average of 1.54 percent over the past year. Investors placed bids for 3.17 times the $35 billion for sale, the strongest show of demand for the notes since last May.

In other trading, the 10-year Treasury note rose 46.8 cents for every $100 invested. The higher price pushed its yield down to 1.99 percent from 2.06 percent late Tuesday.

The price of the 30-year bond fell 3.12 cents. Its yield was unchanged at 3.15 percent.

In the market for short-term bills, the 3-month T-bill yielded a 0.04 percent.