Bonds skyrocket on Fed's $300B pledge

Bond prices spike after Federal Open Market Committee says it will purchase long-term Treasurys over the next six months.

By David Goldman and Catherine Clifford, CNNMoney.com staff writers

Last Updated: March 18, 2009: 5:19 PM ET

NEW YORK (CNNMoney.com) -- Treasury prices surged Wednesday, after the Federal Reserve said it would buy up to $300 billion in long-term Treasurys - a move the central bank has hinted at for months.

By 4:46 p.m. ET, the yield on the benchmark 10-year note had plummeted more than 0.5 percentage points to 2.499% from 3.01% late Tuesday, the largest single-day drop since Oct. 20, 1987.

The 30-year long bond skyrocketed 5 points immediately following the announcement, while the yield, which moves opposite to price, tumbled. At one point, the price surged more than 7 points before easing.

Many interest rates on various forms of debt are tied to long-term Treasury yields, including 10-year mortgage rates. The Fed has been exploring all of its options in an effort to lower interest rates after it lowered its rate to a range of 0.25% to 0%.

First Published: March 18, 2009: 7:55 AM ET