Treasurys mixed following of Fed's statement

• By Hibah Yousuf, CNNMoney.com staff reporter
• On 3:29 pm EST, Wednesday November 4, 2009

Government debt was mixed on Wednesday after the Fed said it would keep interest rates near zero and scale back the amount of debt it is buying.

Though investors expected the central bank to hold interest rates at the historic lows, they looked for clues in the Fed's statement as to when it might remove the stimulus funds it has pumped into the economy.

"The Fed kept its 'extended period' language in terms of how long it will hold interest rates, but this time it provided three reasons for those low levels," said Steve Van Order, fixed income strategist at Calvert Funds. "They want to keep clear that rates aren't low because of a crisis in financial markets anymore, but because they are still worried on the economic outlook."

The 2-year note firmed slightly following the announcement.

The central bank also announced it will scale back the amount of agency debt it will buy to $175 billion from the previously announced $200 billion.

Van Order said the downsize isn't surprising, however, and said it was just a way of "admitting reality" that the agency debt market is technically strong.

Record refund. Though 2-year notes firmed following the announcement, the benchmark 10-year bond and long bonds sagged. They were reacting to Treasury's announcement of a record quarterly refunding earlier in the day.

"Once the Fed's dovish statement was out, the 10-year [note] got back to contemplating the supply outlook," Van Order said.

The government plans to auction a record $81 billion of debt next week to refund $38.5 billion of securities that are maturing and to raise another $42.5 billion.

"Investors are showing a little hesitation because of the refinancing announcement today," said Peter Cardillo, a chief market . An announcement about more supply typically reduces debt prices.

The refunding calls for auctions of $40 billion of 3-year notes, $25 billion of 10-year notes, and $16 billion of 30-year long bonds to take place next week.

The Treasury said it expects to reach its debt ceiling at the end of the year. If that happens, Treasury would not be able to issue more debt, forcing Congress to raise the debt ceiling.

That would be far from unusual. Lawmakers have raised the ceiling more than 90 times since 1940.

Debt prices. The benchmark 10-year note was down 22/32 to 100-20/32 and its yield rose to 3.56% from 3.47% late Monday. Bond prices and yields move in opposite directions.

The 30-year bond lost 1-20/32 to 101-7/32. Its yield was 4.43%.

The 2-year note edged up to 100-6/32, with a yield of 0.92%.

The yield on the 3-month bill was 0.05%

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