By Steven Norton
NEW YORK, Dec 18 (Reuters) - U.S. Treasuries prices slipped
after the Federal Reserve announced it would start dialing back
its monthly bond-buying program by $10 billion and signaled that
it may keep its key interest rate extremely low even longer than
The moderate losses reversed the bond market's slim gains
during a brief interlude after the Fed's statement. The bond
market reacted negatively to outgoing Fed Chairman Ben
Bernanke's statement that the Fed might continue to reduce
purchases steadily, implying the approximate end of the
quantitative easing, or QE, program by the end of 2014.
The Fed said it will buy $75 billion of bonds per month,
split between $35 billion in mortgage-backed securities and $40
billion in U.S. Treasuries. The central bank repeated that it
will hold rates near zero as long as the jobless rate is above
6.5 percent and inflation remains low. The Fed also said it
probably will keep the federal funds rate at zero to 0.25
percent well past the time that the U.S. unemployment rate falls
below 6.5 percent, especially if projected inflation is below 2
'Now we know how the Fed plans on exiting. We've gotten a
template. The 10-year yield is telling you 'it's happened.'
Let's move on. Let life continue,' said Quincy Krosby, market
strategist at Prudential Financial, in Newark, New Jersey.
Bonds fell immediately following the announcement in a
knee-jerk reaction, but quickly pared losses and managed some
modest gains. The advance faded fast, though.
On the open market, the benchmark 10-year U.S. Treasury note fell 12/32 in price, its yield rising to 2.887
percent. The 30-year bond dropped 21/32 in price,
yielding 3.909 percent.
Many analysts expected the central bank to announce plans to
trim its stimulus program in the first quarter of next year. But
encouraging economic data and jobs growth, along with a new
budget deal in Congress, had persuaded some economists that the
stage was set for a taper announcement this month.
'Cutting the amount by $10 billion is a good signal that QE
won't be a forever thing,' said Wayne Kaufman, chief market
analyst at Rockwell Securities in New York. 'I think they are
relieved the Fed is starting. No one wanted this 800-pound
gorilla in the market.'
(Additional reporting by Ellen Freilich in New York; Editing by
Meredith Mazzilli, Leslie Adler and Jan Paschal)
((firstname.lastname@example.org)(+1 646 223-6047)(Reuters
Keywords: MARKETS USA BONDS/
(-------MARKET SNAPSHOT AT 3:06 p.m. EDT (2006 GMT)------- Dec T-Bond 130-27/32 (-15/32) Dec 10-Year note 125-20/32 (-07/32) Change vs Current Nyk yield Three-month bills 0.065 (+0.00) 0.066 Six-month bills 0.09 (unch) 0.090 Two-year note 99-27/32 (-01/32) 0.328 Five-year note 98-25/32 (-02/32) 1.505 10-year note 98-30/32 (-09/32) 2.874 30-year bond 97-08/32 (-19/32) 3.907 DOLLAR SWAP SPREADS LAST Change U.S. 2-year dollar swap spread 6.00 (-2.00) U.S. 3-year dollar swap spread 6.50 (unch) U.S. 5-year dollar swap spread 5.75 (-1.00) U.S. 10-year dollar swap spread 4.75 (-0.25) U.S. 30-year dollar swap spread -9.00 (unch))
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