The Federal Reserve on Friday began a second round of unconventional monetary easing by buying $7.229 billion of Treasuries in attempt to drive down borrowing rates to help reduce unemployment and avert deflation.
Policymakers acquired 16 of the 24 securities maturing from November 2014 through April 2016 that were listed on the Federal Reserve Bank of New York's website.
The acquisitions are part of the central bank's plan to acquire $600 billion of Treasuries through June and reinvest maturing mortgage holdings.
The policy-setting Federal Open Market Committee announced this round of stimulus on Nov. 3 after a benchmark interest rate near zero and an earlier program to buy $1.7 trillion of securities failed to bring down an unemployment rate that's stuck near a 26-year high.
The policy known as quantitative easing has triggered criticism from officials in nations including Brazil, China and Germany, who say the injection of cash into the banking system may harm economies worldwide.
"There is some discomfort in the market right now because the QE2 has come under such criticism by a vast array of sources," said Ward McCarthy, chief financial economist in New York at Jefferies & Co. Inc., one of the 18 primary dealers that trade government debt with the central bank. "Once the Fed gets into its routine — next week they will be in buying Treasuries every day — it will begin to have a positive effect on the Treasury market."
The yield on the 10-year Treasury note increased 10 basis points, or 0.10 of a percentage point, to 2.75% at 12:35 p.m. in New York. The yield increased 22 basis points last week.
Two of the 16 securities the Fed purchased today carried a interest rate coupon of over 10%, including a 10.625% note maturing Aug. 15, 2015, and one with a 11.25% coupon that comes due on Fed. 15, 2015.
"Some of the securities the Fed purchased have been floating around for a long time," McCarthy said. "Whoever owned them made a massive profit."
The central bank eased a self-imposed 35% individual security holdings limit, allowing for increases "only in modest increments," for the purchases. The Fed said on Nov. 10 that it would purchase $105 billion of debt over the next month.
The central bank expects to reinvest $250 billion to $300 billion of proceeds from mortgage-backed debt and agency securities into Treasuries through the end of the second half of next year. The Fed has bought $75.845 billion of Treasuries since it began the reinvestment program on Aug. 17.
The closing time for Friday's transactions was pushed back to 11:30 a.m. from 11 a.m. New York time because of a "technical issue," according to Deborah Kilroe, a spokeswoman for the New York Fed.