Treasury rates sink after Fed statement

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NEW YORK (AP) — Long-term interest rates sank near record lows Tuesday after the Federal Reserve said economic growth is “considerably slower.”

The Fed also pledged to keep a lid on short-term interest rates until at least the middle of 2013, implying the Fed will keep its benchmark lending rate near zero for nearly two more years.

The Fed’s statement acknowledged that the economy was struggling but offered no real help, said Dan Greenhaus, chief global strategist at the broker BTIG.

“They did nothing,” he said. “The concern among investors that a new recession will be met with a weak policy response was validated.”

After the Fed released its statement, the yield on the 10-year Treasury briefly touched a record low of 2.03 percent, then quickly headed higher.

In late Tuesday afternoon trading, the 10-year yield was trading at 2.22 percent. Its price was up $1.46 for every $100 invested. The yield on the two-year note hit an all-time low of 0.19 percent. Bond yields fall when their prices rise.

Worries over the economy typically send traders into the relative safety of Treasurys. The 10-year yield, used to set interest rates on a wide variety of loans including mortgages, previously reached a record low of 2.05 percent in December 2008.

Treasury yields were already near their lows for the year, after a stock market on Monday rout sent investors into the relative safety of Treasurys.

Earlier Tuesday, investors bought three-year Treasurys at a record-low interest rate, in the first government debt auction since Standard & Poor’s cut the U.S. credit rating.

The Treasury sold $32 billion in three-year notes to yield 0.50 percent. That’s a record low borrowing rate. Investors also placed bids for 3.29 times the $32 billion up for sale, the strongest show of demand since November 2009.

In other Treasury trading, the 30-year bond is up $1.43. Its yield fell to 3.58 percent, down from 3.67 percent late Monday.