Pegging The 10 Yr Treasury Bond

[Reub]

I heard a talking head named Ed Yardeni speaking today. He was speculating about Ben Bernanke pegging the 10 yr bond to the 2.00% level. He mentioned that Bernanke once wrote about pegging shorter term treasuries before he became the big enchilada in 2002.

Yardeni feels that doing this could ignite a big bond rally, keep rates necessarily low, and continue the stock market rally.

Any thoughts on if this is even possible?

[D1984]

I heard a talking head named Ed Yardeni speaking today. He was speculating about Ben Bernanke pegging the 10 yr bond to the 2.00% level. He mentioned that Bernanke once wrote about pegging shorter term treasuries before he became the big enchilada in 2002.

Yardeni feels that doing this could ignite a big bond rally, keep rates necessarily low, and continue the stock market rally.

Any thoughts on if this is even possible?

Sure it's theoretically possible...the Fed pegged LT bond yields at 2.50% (IIRC) from 1941 to circa 1951 and shorter term yields at 0.375% from 1941 to shortly after WWII; it did so by promising to buy enough LT bonds at that rate to keep rates at 2.5% or thereabouts. The Fed did have to buy a decent amount of bonds to keep the rate at 2.50% but perhaps not as many as would be expected; people and institutions bought a lot of the bonds at that rate because even 2.50% was higher than what they could get on ST bonds and if the Fed was guaranteeing no capital losses by rising rates (since it had pledged to not let rates get above 2.5%) then LT bonds were as safe as ST ones. With TIPS and I-bonds availale today that might not work as well (plus today we don't have the quasi-forced savings effect brought on by rationing and by restrictions on civilian manufacturing and construction).

Whther it is a GOOD idea or not is another story (it probably wouldn't hurt much right now with the economy still depressed and people's balance sheets still being repaired but in an economy operating at capacity it would basically involve suppressing rates and flooding the economy with money so hello double-digit inflation).

[AdamA]

Any thoughts on if this is even possible?

They've pegged the one year to zero for years and people still buy them. 

I don't see why they can't try the same thing with the 10 year.

[dualstow]

I hope rates stay low. I want to apply for a home equity loan.