A dramatically steeper U.S. Treasury yield curve may be the new norm now the Fed has told bond investors it plans to stoke inflation to revive the economy.
The Fed said on Wednesday it expects to purchase $850 billion in Treasuries by the middle of 2011, more than half of the roughly $1.3 trillion in debt the U.S. government is expected to issue next year.
By some measures the Fed's buying program was more than financial markets expected.However, it didn't impress everyone and with the average maturity of the new purchases between five and six years, longer dated bonds took a beating.
...That is bad news for the longer end of the Treasury curve. The 30-year long bond tumbled more than two points in price.
The Fed trying to stoke inflation or help the banks shore up capital by creating the dream environment - virtually free deposits and higher rate assets/loans. This is indeed the QE octopus.
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