Federal Reserve Chairman, Ben Bernanke has increased speculations that the central bank is planning to purchase more US debt. As a result, treasuries have risen for the second consecutive day.
Two-year yields dropped to near a basis point from record lows yesterday, on the back of comments from Bernanke that the first round of quantitative easing measures by the central bank had improved US economic conditions, and that more would likely follow. Analysts are pretty certain that the Fed will expand its buying in coming days in an effort to revive the US economy, which is all but stalled.
The initial impact of the quantitative easing strategy, according to Peter Jolly of the National Australia Bank, “has to be lower yields” as the Fed lays the groundwork for further easing measures. US government securities also jumped a little after the Reserve Bank of Australia delayed a rise in borrowing costs today.
After the Fed bought up nearly $300 billion of Treasuries last year, recent statements indicate that the proceeds from these purchases once matured will be put into government debt. The Fed is also set to purchase more Treasuries today and tomorrow, with speculation as to whether securities will be added to the shopping list.
While industry insiders expect more turbulent times ahead, and a slow recovery, there is nevertheless hope that the market has room to rally. “We continue to see what we believe to be a slow-growth economy, but still a growth economy,” commented Norfolk Southern Corp. Chief Executive Charles Moorman.
