Fed Buys $6 Billion of Three, Four-Year Treasuries (Update2)

April 1 (Bloomberg) -- The Federal Reserve bought $6.008 billion of Treasuries maturing between three and four years as part of policy makers’ efforts to lower consumer borrowing rates and revive economic growth.

Thirteen of the 20 securities listed for purchase were acquired, the Federal Reserve Bank of New York said in a statement today. Dealers submitted $16.95 billion in Treasuries for consideration, or 2.82 times the amount purchased. At the last operation, dealers submitted $8.132 billion, or 3.25 times.

The central bank has bought $23.55 billion in U.S. debt through so-called coupon passes since announcing on March 18 it would acquire as much as $300 billion over six months. Treasury yields are linked to consumer loans such as mortgages. The last repurchase on March 30 focused on longer-maturity securities.

“This buy-back operation looks a little better than the last one,” said Michael Marzano, senior vice president of interest-rate futures trading at Prudential-Bache Commodities in Chicago. This is “in part as there is better liquidity and more transparent pricing in this maturity area. In terms of the Fed accomplishing keeping rates in a lower environment, for now it is working.”

The buybacks are small relative to the record amount of debt the government is issuing to help fund its economic stimulus programs. The Treasury will almost triple debt sales this year to a record $2.5 trillion, according to Goldman Sachs Group Inc., one of 16 primary dealers that trade with the central bank.

Mortgage Rates

U.S. debt handed investors a loss of 1.4 percent in the first quarter, according to Merrill Lynch & Co.’s U.S. Treasury Master index. That’s the worst start to a year for the securities since 1996.

Yields on three-year notes increased two basis points to 1.14 percent at 3:36 p.m. in New York.

Fed policy makers lowered the benchmark interest rate to a target range of zero to 0.25 percent in December and switched to using credit programs and outright purchases of Treasuries as the main tool of monetary policy, to pump cash into banks and bolster lending.

The average 30-year mortgage rate as measured by Freddie Mac was 4.85 percent, or 2.11 percentage points more than the yield on 10-year Treasury notes on March 26, according to the most current data available. The spread averaged 1.72 percentage points in the decade before the credit crisis began.

The central bank will buy notes maturing in September 2013 through February 2016 tomorrow. It will resume purchases on April 6 and 8. The Fed’s 16 primary dealers are eligible to sell Treasuries to the central bank, both for themselves and customers, as part of the program.

To contact the reporter on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net

To contact the editor responsible for this story: David Liedtka at dliedtka@bloomberg.net