30-year yield jumps to 4% after Fed

10yryield-3.30.top.pngClick chart for prices and yields. By Blake Ellis, staff reporter


NEW YORK (CNNMoney.com) -- Long-term Treasury yields rose Wednesday after the Fed announced a huge bond-buying plan -- of mostly short-term Treasuries.

After slumping earlier in the session, the 30-year yield jumped to 4.06% from 3.93% on Tuesday. The yield on the benchmark 10-year rose to 2.62% from 2.55% Tuesday. Bond prices and yields move in opposite directions.

But most of the buying plans were concentrated in medium-term Treasuries, like 5-year and 7-year notes, leading investors to rush out of longer-dated securities. While 91% of the Fed's purchases will be Treasuries dated up to 10 years, only 6% were Treasuries with maturities of more than 10 years.

"People were expecting a much more spread out execution of both long- and short- term securities, instead of just short-term," said Michael Cheah, a bond fund manager at SunAmerica. "So the knee-jerk reaction to the fact that the Fed is not buying as much of the 10s and 30s is sell."

As longer-term yields surged, shorter term yields were down slightly but unchanged from earlier in the session. The 2-year yield was 0.33%, from 0.36% Tuesday, while the 5-year yield slipped to 1.12% from 1.15%.

In a policy statement issued Wednesday, the central bank said it will purchase $600 billion of Treasuries by the second quarter of 2011. It will also continue to reinvest an additional $250-300 billion with the proceeds of its earlier investments, bringing total purchases up to $900 billion.

About 3% of the Fed's purchases will be Treasury Inflation Protected Securities (TIPS), which are protected against consumer price inflation and pay additional principal when inflation rises.

In anticipation of a big Fed buying spree, investors had been doing some last-minute purchasing of Treasuries this week. With the Republicans' election triumph already priced in to the markets, prices moved higher Tuesday as well.

But now that the cat's out of the bag, investors are wondering how effective the Fed's plan will really be.

"The Fed's action is difficult to fathom," said Cheah. "It would have helped to buy longer-term securities because two ways to really affect the economy are to push mortgage rates down and longer-term borrowing rates down, and both rates are closely tied to the 10-year Treasury yield."

"Now that they've done whatever it is they've done, one has to ask the question, what are they really trying to do?" To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.08%4.12%
15 yr fixed3.23%3.21%
5/1 ARM3.46%3.30%
30 yr refi4.14%4.12%
15 yr refi3.28%3.21%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 16,804.71 -238.19 -1.40%
Nasdaq 4,422.09 -71.30 -1.59%
S&P 500 1,946.16 -26.13 -1.32%
Treasuries 2.40 -0.10 -4.19%
Data as of 6:45pm ET
Company Price Change % Change
Bank of America Corp... 16.82 -0.23 -1.35%
Ford Motor Co 14.59 -0.20 -1.34%
Facebook Inc 76.55 -2.49 -3.15%
Apple Inc 99.18 -1.57 -1.56%
Cisco Systems Inc 25.03 -0.18 -0.72%
Data as of 4:03pm ET

Sections

In the last five years, pumpkin sales have risen 34% as people demand pumpkin in everything from beer to beef jerky. More

Facebook's chief product officer issued an apology to Sister Roma and the drag community on Wednesday for its flawed 'real name' policy. More

New York City launches a comprehensive site for all things related to its digital tech scene, Digital.NYC. More

For these seniors, the best retirement is not to retire. From a 102-year-old Wal-Mart worker to an activist park ranger, these workers have stayed on the job well into their golden years. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.