As central bankers prepare for their annual confab in Jackson Hole, Wyo., later this week, Barclays says traders have already priced in $500 billion to $600 billion of Treasury purchases by the Fed. But analysts interviewed by Bloomberg say it’s unlikely an announcement will happen, which will result in a reversal of this outperformance of 10-year notes.
The news service reports “Record-low yields on U.S. Treasuries show traders expect Federal Reserve Chairman Ben Bernanke to signal as soon as this week that the central bank will begin a third round of asset purchases to boost the economy, a scenario the world’s biggest bond dealers said is unlikely.”
Bloomberg also quotes a Citigroup report that says current rates can only be justified by more central bank bond buying or assuming the economy will shrink by 2%.
“The market is pricing in another round of large-scale asset purchases, looking for confirmation possibly as early as the Jackson Hole symposium”, Anshul Pradhan, a fixed-income research analyst at Barclays in New York, told Bloomberg. “The probability of that is low. If the chairman does disappoint, then there should be a reversal in the outperformance of 10-year notes.”