Analysis: Treasury yields might increase when Fed stops buying MBS

01/22/2010 | International Business Times

Increased volatility and higher yields are likely to sweep through the market for U.S. government bonds when the Federal Reserve stops buying mortgage-backed securities, according to International Business Times. Higher yields demanded by private investors likely will drive up rates on home mortgages, triggering a strategy known as convexity hedging, which might depress Treasuries and force up their yields. There are some indications the market is already anticipating this. "Some feel that the recent market moves reflect investor positioning for the end of several unconventional Fed facilities," said Mohamed El-Erian, CEO at Pacific Investment Management.

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