Interest Rates Rising Despite Fed Purchases

from Marketwatch:
NEW YORK (MarketWatch) -- Treasury prices declined Monday, with longer-term debt reversing earlier strength, as investors remained wary of buying before the Treasury Department auctions $59 billion in new debt this week.
Earlier support dissipated after the Federal Reserve purchased $2.53 billion in Treasurys maturing between 2019 and 2026, less than some had expected.
Ten-year note yields rose 4 basis points, or 0.04%, to 2.93%. Yields move in the opposite direction of prices.
Shorter-term notes were little changed, as declines in U.S. equities hinted at skepticism among investors that may keep them in the relative safety of government debt and away from riskier assets.
The Fed was expected to buy between $7 billion and $10 billion in the operation, in line with amounts in its most recent buybacks, said analysts at Morgan Stanley. Last week, the market was very disappointed it only bought $2.5 billion of longer-dated debt, they said.
The Fed's next purchases will take place on Wednesday when it will buy shorter-term securities maturing in 2010 and 2011.
The Treasury also announced it will auction $35 billion in 3-year on Wednesday and $18 billion in 10-year notes on Thursday. It previously said it would sell $6 billion in inflation-linked securities on Tuesday.
The amounts are roughly in line with estimates from Wrightson ICAP, a research firm specializing in government finance.
Analysts also noted that trading volume was low ahead of upcoming holidays. Passover starts Wednesday and markets are closed for Good Friday.
Fed purchases last week did little to keep Treasury yields down, as equity gains and data revived some optimism among investors. A dismal monthly payrolls report on Friday was better than the even grimmer report some investors had braced for.
Ten-year note yields increased 15 basis points last week, pushing back towards levels last seen before the Fed surprised markets after its last policy meeting by announcing it would purchase $300 billion in Treasurys in the following six months.
"The Fed's problem is that the market realizes that $300 billion in Treasury buybacks is just a drop in the bucket compared to $2.5 trillion in estimated net Treasury issuance this fiscal year," said strategists at UBS Securities. The fiscal year ends in September.

Apparently, the Fed's purchases are insufficient to affect interest rates. The size of even the Fed's balance sheet is too small for the gargantuan size of the U.S. government's debt.