For further easing to be successful, the Fed should make purchases of mortgage-backed securities and Treasuries "unspecified and conditional," focusing on improvements in economic data rather than setting a total amount that it will buy, Graff said.
The Fed sold $7.8 billion of Treasuries today maturing from February 2013 to February 2014 as part of Operation Twist, its program to swap shorter-term securities in its holdings with longer-term debt to put downward pressure on borrowing costs.
The benchmark 10-year Treasury yield is poised for its first weekly increase since the five days ended Aug. 17. Demand for refuge dropped as European Central Bank President Mario Draghi announced yesterday an unlimited bond-purchase program to regain control of interest rates in the euro region and fight speculation of a currency breakup.
The ECB's Outright Monetary Transactions plan will focus on government bonds with maturities of one to three years, Draghi said. The ECB will only intervene in the secondary market if a nation has asked Europe's bailout fund to buy its debt on the primary market, ensuring strict conditions, he said.
The U.S. will auction $66 billion in notes and bonds next week: $32 billion in three-year debt, $21 billion in 10-year securities and $13 billion in 30-year bonds, the Treasury announced yesterday.