Fed Slowing Treasury Purchases?

Ten year Treasury yields are flat on the week after yesterday's strong rebound and limited follow through today. Yet the sharp rise in yields, including mortgages and agency bonds, had prompted speculation that the Fed would have to step up its purchases and there was even some talk that it could not wait until the next FOMC meeting which scheduled for June 24th.

Yet what the Fed announced this week seems to point in the opposite direction. It indicated that over the next two week it will make four purchases of US Treasuries. It is the second consecutive two week period it will make four purchases. Yet in four of the first five periods, the Fed bought Treasuries in five operations.

The Fed has purchased an average of a little more than $26 bln worth of Treasuries in each two week period. It would seem that if the Fed wanted to protest the backing up of rates it could accelerate its purchases and/or concentrate them more, which it does not appear to be doing.

At the current rate, the Fed would have bought the $300 bln of Treasuries it committed to in late March by late August. Many expect the Fed to tweak its program and buy more Treasuries. Currently there is much guessing about when the Fed would announce the details. While some expect it to announce more details at the upcoming FOMC meeting, partly because if not then, the next FOMC meeting is not until August 12th. There is a great deal to be said about strategic ambiguity (who knew that the ECB had a secret--"undisclosed" swap line with the Riksbank from which 3 bln euros was tapped this week), but when it seems officials want to be fairly clear and transparent about their controversial long-term asset purchases.