The Federal Reserve's latest attempt to push down interest rates was just announced this afternoon, but it already appears to be working. On the news, the market pushed 10-year Treasury yields down to a ridiculously low 1.86%. That's a new, as in as far back as the Fed's data goes, low. Who are the winners and losers here?
In case you missed the news, the Fed announced today that it will swap out $400 billion of its shorter-term Treasuries for longer-term government debt. Its goal is to push down longer-term interest rates. As mentioned, the market is already beginning to price in the higher demand the Fed will create for longer-term bonds by pushing down their interest rates.
Here's the historical chart for 10-year Treasuries (the green line shows the new low yield where the market closed today):
The influence of yields this low should be felt across the U.S. economy, but a few sectors, in particular will definitely notice.
One obvious target here was mortgages. Their interest rates tend to follow 10-year Treasury yields, so we can be fairly certain that they're headed downward too. In fact, the Fed appeared to be aiming directly at mortgage rates with its action today, since a part of its announcement today included a new policy to reinvest the principal it gets from maturing agency bonds and mortgage-backed securities in additional agency MBS. Up to now, it only reinvested that principal in Treasuries.