Treasuries Advance as Stocks Fall, Fed Prepares to Buy Debt - Bloomberg.com

This is how the "game" is played by the United States of Goldman Sachs. First, when the banks need money, concoct a "turnaround" in the economy in the way of "green shoots" and sell a phony bank non-stress test to the naive public. Then, after the banks have recapitalized with fresh "dumb money," change the story to scare investors out of stocks and back into government bonds. The U.S. government cannot afford to pay higher rates. Higher rates could also cause another leg down in the real estate market which would be bad for banks. Therefore, the yield on the 10-year must come down. The Federal Reserve will demonstrate its anxiety this week by actively monetizing debt.

Treasuries Advance as Stocks Fall, Fed Prepares to Buy Debt - Bloomberg.com: "May 18 (Bloomberg) -- Treasuries rose, adding to last week’s gain, as Asian stocks extended losses and the Federal Reserve prepared to buy 10-year notes today.

Benchmark 10-year yields will fall about 40 basis points by mid-year and the U.S. economic recovery may stall, according to a report from Goldman Sachs Group Inc., one of the 16 primary dealers that trade directly with the Fed. The central bank also plans to buy Treasuries on May 20 and May 21 as part of its plan to cap borrowing costs and combat the steepest U.S. recession in 50 years.

“The economy is still in trouble,” said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking Corp., part of Japan’s biggest bank. “Yields will go down.”

The yield on the 10-year note fell three basis points to 3.11 percent as of 10:10 a.m. in Tokyo, according to data compiled by Bloomberg. The price of the 3.125 percent security maturing May 2019 gained 1/4, or $2.50 per $1,000 face amount, to 100 1/8. A basis point is 0.01 percentage point.

Ten-year yields declined 15 basis points last week, as prices posted the first seven-day gain since the period that ended March 20.

The MSCI Asia Pacific Index of regional shares dropped 1.6 percent today, after the Standard & Poor’s 500 Index slid 1.1 percent on May 15, helping fuel demand for the relative safety of government debt.

Fed Buying Notes

The Fed plans to purchase notes due from August 2019 to February 2026, according to its Web site.

It is scheduled to buy securities maturing from February 2016 to May 2019 on May 20 and from September 2013 to February 2016 on May 21 as part of its plans to cap borrowing costs.

Ten-year yields will fall to 2.7 percent by June 30, Goldman said in a report May 15 written by economists including Ed McKelvey in New York.

“We worry that the recovery could stall in 2010,” the economists wrote.

Fund managers became more bearish on the outlook for Treasuries through the end of the year, a survey by Ried, Thunberg & Co. shows. The company’s sentiment index dropped to 40 for the seven days ended May 15 from 42 the week before. A reading below 50 means investors expect prices to fall. The economic analysis firm in Jersey City, New Jersey, surveyed 26 investors controlling $1.41 trillion.

Longer-maturity Treasuries rose last week as the highest yields since November lured investors to the safety of government debt amid a pause in the Treasury’s record pace of debt sales.

‘No Real Supply’

“You have a two-week period with no real supply except the bills and some good attractive yields,” said Thomas Roth, head of U.S. government-bond trading in New York at Dresdner Kleinwort, one of 16 primary dealers required to bid at Treasury auctions. “People were willing to buy some paper.”

The 30-year bond yield touched a 2009 high of 4.357 percent on May 8.

The Treasury’s next round of auctions begins on May 26 with sales of two-, five- and seven-year securities over three consecutive days."