The FOMC statement released Tuesday afternoon ahs given investors plenty to think about. The Fed noted it sees a slowdown in output and employment, and announced it will reinvest cash flows from its mortgage bond holdings into longer term treasuries. You should know under normal conditions the Fed invests reserves in Treasury bills, maturities less than 1 year. So longer term treasuries for the Fed means 2 to 10 years, generally less than 10 years.
After sleeping on this information, the markets have reacted strongly today, with U.S. stocks sharply lower. Yields on Treasury notes and bonds are moving lower as we see the yield on the 10 year note fall to 2.71%. Keep in mind, the U.S. Treasury will auction $24 billion of 10 year notes today.
The Fed sent a clear message Tuesday, that interest rates will remain low for an extended period of time, until there is clear evidence the employment picture is improving and deflation is no longer a concern.
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