Bond traders jump in ahead of government buys

Stocks stage big rally, Dow spikes 2 percent 
 
U.S. stocks rallied Thursday, with all three major indexes finishing at two-year highs, as investors continued to cheer the Federal Reserve's announcement to pump $600 billion into the economy.

The Dow Jones industrial average jumped 220 points, or 2 percent. The S&P 500 climbed 23 points, or 1.9 percent, and the Nasdaq rose 37 points, or 1.5 percent.

The Fed said Wednesday it will buy $600 billion of U.S. Treasuries by the middle of next year. The additional stimulus, referred to as quantitative easing, is the Fed's latest stab at lowering interest rates and combating deflation – a move it hopes will help prop the sluggish economy.

The announcement was met with a tepid response Wednesday, but markets around the world surged Thursday. Commodities went along for the ride, with oil jumping 2 percent and gold rallying 3 percent. Treasuries also rose as investors looked to get in on the buying action ahead of the Fed.

Bond traders jump in ahead of government buys 
 
Treasury prices continued to rise Thursday, after the Fed's launch of a $600 billion bond-buying spree and a weak labor report boosted the appeal of government debt.

Anticipation of a second round of asset purchases from the Fed has lent support to the bond market recently, as traders have tried to get ahead of the government's big buy.

Now, after the Fed laid out its plan Wednesday, buyers who were previously sitting on the fence, are jumping in to buy bonds and front-run the government's purchases, said Michael Cheah, a bond fund manager at SunAmerica.

Bond traders are trying to get ahead of the Fed's $600 billion in purchases, by getting into the market at current prices and yields. The large bond purchases by the government are meant to drive Treasury prices higher and yields lower.

Source: CNNMoney.com reporters Blake Ellis and Annalyn Censky contributed to this report.