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Federal Reserve Announces the End of Treasury Purchasing
The Federal Reserve yesterday ended its $300 billion Treasury purchasing program. The program has seemingly been successful in limiting cost increases for borrowers and bringing stability to the housing market.
The yield on a 1- year note, considered a benchmark used to determine interest rates stayed below 4% during the program’s run. Rates have climbed less than half a point since the program was announced, despite the US selling more than $1.25 trillion worth of notes and bonds, more than twice the amount sold the previous year. Economists say that the debt-purchasing program probably kept rates from climbing higher when the 10-year rate went to about 4%. It was the first time since the ‘60s the central bank bought up US Treasuries to control borrowing costs. The Fed was following the lead of agencies in the UK and Japan, who had already instituted debt-purchasing programs, in an attempt to help end the worst recession in the US since the Great Depression of the 30s.
The Fed purchased nearly $2 billion in debt consisting of eight securities that will mature between December 2013 and September 2014. Since March 18th when the Fed announced its plan to purchase securities, the 10 year Treasury yield has climbed from 2.5% that day to 4% on June 11th, falling back to 3.47% by yesterday.
Meanwhile, demand is on the rise in the US housing market, where the industry has lost an average of 1% per quarter of gross domestic product since 2006. Existing home sales rose a record-high 9.5% in September to an annual rate of more than 5.5 million, the highest it’s been the last two years. The average rate for 30 year mortgages was 5% for the third week in October, down from a high of 6.62% set last year. Corporate bonds are averaging a 6% yield, down from 10.4% in March. Borrowers have sold more than $1 trillion in corporate bonds this year, which represents the fastest pace in history.
Marin Real Estate Blog
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