Politi: Fed quantitative easing...

...The yield on two-year notes sits at a record low of 0.51 per cent, while five-year notes have dropped to 1.51 per cent from 2 per cent in mid-June. In the past month the bond market has moved to price in the first rate rise at the end of 2011, rather than next June. That has been accompanied by a sharply weaker dollar against big currencies, notably the Japanese yen.

“Although it is a fairly close call, we now expect the Federal Open Market Committee to announce that they will reinvest the paydown of MBS in the bond market at next Tuesday’s meeting,” said economists at Goldman Sachs, calling this a “baby-step” toward fully-fledged monetary easing late this year or in early 2011, involving asset purchases of at least $1,000bn and a “more ironclad” commitment to low interest rates...