The yield gap between 10- and 30-year Treasuries widened to the most in a year on concern the Federal Reserve’s plan to buy more debt and pledge to keep monetary policy accommodative even when the economy strengthens will spur inflation.
The difference touched 1.21 percentage points, the most since August 2011, as yields on 30-year debt, more sensitive to inflation because of its longer maturity, climbed to the highest since May. The drop in prices followed a $13 billion sale of bonds just before the Federal Open Market Committee said it would expand its holdings of long-term securities with mortgage- debt purchases. It also said it would probably keep interest rates at virtually zero into 2015.
“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the FOMC said today in a statement at the end of a two-day meeting in Washington.
The central bank’s stimulus efforts since 2008 have failed to breathe life into the labor market, which Chairman Ben S. Bernanke said last month is a “grave concern.” Unemployment has been stuck above 8 percent for 43 straight months.