Fed plan may disappoint bond traders

10year.top.pngClick chart for more bond market data. By Hibah Yousuf, staff reporter

NEW YORK (CNNMoney.com) -- Bond traders have been gearing up for the Federal Reserve's second round of stimulus measures for weeks. With the highly-anticipated announcement just days away, analysts warn that investors could be in for a disappointment.

After the central bank hinted that it plans to implement another round of quantitative easing, or buying up assets to boost the economy, traders scooped up bonds, pushing the 10-year yield to a new 52-week low of 3.33% earlier this month.

The buying has eased and yields have recovered some, with the 10-year back above 2.5% and the 30-yield breaking through 4%, as investors pause for details about the Fed's announcement, which is expected at the conclusion of the central bank's two-day policy meeting Nov. 3, following election night.

"At this point, the market has priced in a moderate package in quantitative easing measures, on the order of $500 billion," said Kim Rupert, fixed income analyst at Action Economics. "But there's enough opposition within the Fed on the whole idea, which suggests that they might temper the initial size of the package."

That could leave investors unsatisfied, and spark a knee-jerk sell-off in Treasuries, pushing yields higher, she added.

"The Fed is trying to figure out how much they can afford to disappoint the market," said Rupert, adding that the Fed's ultimate goal with buying up assets is to drive interest rates lower. "To assuage the initial disappointment, they may leave the package open ended so that they can add to the amount if needed."

Even if traders are content with the Fed's plan of action on Wednesday, and yields drift lower, analysts question how effective the measures may be.

"The Fed is trying to avoid deflation and rapidly falling home prices that could lead to another housing dilemma," said Peter Cardillo, chief market strategist at Avalon Partners. "But even if you get rates to move lower, you're not reducing unemployment. And if people don't have enough income to buy a house, it doesn't matter where rates are."  To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed4.33%4.31%
15 yr fixed3.76%3.73%
5/1 ARM4.11%4.21%
30 yr refi4.31%4.28%
15 yr refi3.73%3.70%
Rate data provided
by Bankrate.com
View rates in your area
Find personalized rates:
Index Last Change % Change
Dow 24,864.11 136.84 0.55%
Nasdaq 7,390.29 25.99 0.35%
S&P 500 2,729.02 12.08 0.44%
Treasuries 2.91 0.03 0.90%
Data as of 12:50pm ET
Company Price Change % Change
Facebook Inc 172.11 3.96 2.36%
General Electric Co 13.84 0.20 1.49%
Micron Technology In... 60.99 -0.16 -0.26%
Advanced Micro Devic... 11.28 0.18 1.58%
Bank of America Corp... 32.05 0.07 0.22%
Data as of 12:35pm ET


Starbucks has reached gender and race pay equity among all US employees who perform similar tasks, the company said on Wednesday. More

Despite President Trump saying the economy is "raging" and at an "all-time high," growth forecasts have been plunging for the first quarter of 2018. More

"It's like competing in an Olympic race wearing lead shoes," Elon Musk, referring to trade rules with China, tweeted to President Donald Trump. More

Tax season is prime season for fraudsters to steal your valuable information. Here's a list of 12 of the biggest tax scams the IRS is flagging this year. More