Economic Recovery Picking Up Steam

Treasuries were little changed after the minutes of the Federal Reserve’s last meeting confirmed that policymakers believe that economic growth is gaining traction.   Fed officials, however, believe that the economic gains were “not sufficient” to curtail their plans to buy $600 billion in U.S. debt to encourage employment in a stimulus strategy called quantitative easing (QE2 for those with a sense of humor).

“In general, Fed policymakers think the economic recovery is gaining a little bit of momentum, although the pace is a little bit slow,” said Alex Li, a New York-based interest-rate strategist at Deutsche Bank AG.  “There are certainly some concerns about the economy gaining momentum — concerns from Treasury investors.  That added a bearish tone to the Treasuries market.”

Five-year note yields rose one basis point, or 0.01 percentage point, to 2.01 percent in New York, according to BGCantor Market Data.  Ten-year note yields were slightly changed at 3.33 percent after rising to 3.37 percent.  “The Fed will have to see good growth for more than a one- or two-month period to alter their views on QE2,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “They have a high threshold.”

The nation added 140,000 jobs in December, after a rise of 39,000 in November, according to the median forecast in a Bloomberg News survey of 74 economists.  Orders at American manufacturers unexpectedly rose 0.7 percent in November, after falling 0.9 percent in October, according to data from the Commerce Department.

The $858 billion bill that President Barack Obama signed December 17 extending tax cuts for two years prompted speculation that federal borrowing needs to stay stable or increase.

The Fed is buying U.S. debt every day this week in the quantitative easing program.  In fact, it purchased $1.62 billion worth of Treasury Inflation Protected Securities that mature between July of 2012 and February of 2040.