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Two Ways To Play: Fed Creates Treasuries Chest

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Strengthen your portfolio in good times and bad.

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Treasuries prices jumped today after the Federal Reserve cut interest rates to the lowest levels on record according to Bloomberg. The FOMC decided to cut the overnight Fed funds rate 75 basis points to 0.25% while also signaling that it would do whatever necessary to ease the continued stress in the financial markets.

Yields between the two- and ten-year note slimmed to the narrowest margin in four months after the central bank said it remained open to the possibility of purchasing longer-term treasuries. Two-, five-, ten- and thirty-year bonds surged, pushing yields to the lowest levels since the Treasury began selling these securities.

So far this year, US government bonds have returned 12.7%, according to Merrill Lynch's US Treasury Master Index. This was the most since they gained since 13.4% in 2000.

From the Bull Pen: "With the Fed (or perhaps more importantly the perception of the Fed) more willing to buy credit assets, using the convertible market to buy stocks makes more sense than ever," wrote Professor Bill Feingold on the Buzz today. His vehicle is the closed-end Calamos Fund (CHI) which he bought this afternoon.

From the Bear Cave: The time will come when investors wake up to the realization that they are getting a nearly 0% return in treasuries. But the buying could continue into year-end. Bears can consider the Ultrashort 20 plus treasury ETF (TBT) when that time comes.
No positions in stocks mentioned.

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