Treasury yields bounce after Bernanke comments

AP News
Posted: Oct 04, 2011 4:18 PM
Treasury yields bounce after Bernanke comments

Yields on long-dated Treasurys rose Tuesday after Federal Reserve Chairman Ben Bernanke signaled that the Fed might do more to lift the sagging economy.

Bernanke told Congress that the economy is recovering more slowly than he expected and might need more help from the Fed. With short-term rates already near zero, the Fed has few remaining options other than buying longer-term Treasurys to lower their yields.

The yield on the 10-year Treasury note rose to 1.82 percent at 3:48 p.m. Eastern time from 1.78 percent late Monday.

Yields and prices see-sawed throughout the day. Yields on 10- and 30-year Treasurys started the day very low, then rose as traders reacted to Bernanke's comments.

The 10-year yield fell to 1.72 percent shortly before Bernanke spoke, then rose as high as 1.82 percent as money flowed into stocks. In the afternoon, stocks fell again and Treasury yields declined. Both then recovered in the final hour of stock trading.

The note's price fell 32 cents for every $100 invested.

Analysts said the volatile trading was a result of the Federal Reserve's effort to lower long-term rates by buying $44 billion of longer-dated Treasurys and selling the same amount of short-term Treasurys. The Fed bought $4.59 billion of 10-year notes Tuesday morning.

Anthony Valerie, fixed income strategist for LPL Financial, said traders often buy up Treasurys before a big purchase by the Fed and sell them afterwards.

Tuesday's selling "looks like a little hangover from that purchase operation," he said.

The volatile trading came after a long rally for long Treasurys that pushed the yield on the 30-year bond to its lowest level in more than two years. Traders bought up 10-year notes and 30-year bonds after the Fed announced its plan to lower long-term rates.

The yield on the 30-year bond rose to 2.78 percent from 2.75 percent late Monday. Its price fell $1.18 for every $100 invested.

The 30-year yield fell as low as 2.70 percent Tuesday morning, the lowest since January 2009.

Yield is the return investors would earn by holding a Treasury until its expiration date. Higher prices cause yields to fall because they cancel out some of that return.

Kim Rupert, managing director of global fixed income analysis at Action Economics, said traders of Treasurys mostly follow signals from the central bank, buying securities that it plans to buy and selling those it plans to sell. But she said long rallies like the one that started this summer often lead to small reverses as traders shift money around.

"You get days like today where accounts might have hit their targets, so you take your chips off the table and come back to play another day," she said.

In other trading, the yield on the two-year Treasury note rose to 0.26 percent from 0.24 percent.

The yield on the three-month Treasury bill was unchanged at 0.01 percent. Its discount wasn't available.