By Ellen Freilich
NEW YORK, Aug 27 (Reuters) - U.S. Treasuries prices fell on Friday after Federal Reserve Chairman Ben Bernanke signaled no new bond buying by the U.S. central bank was imminent.
The news prompted the biggest one-day selloff in three months, but yields still only rose to levels just shy of where they were two weeks ago.
Weak economic data and hopes that Bernanke would specify some new monetary easing measures had propelled bond prices higher during the week and in the hours leading up to his Friday speech.
Although the Fed did say on Aug. 10 it would use cash from maturing mortgage bonds it holds to buy more government debt, the market was gearing up for even more quantitative easing due to a poor run of economic indicators in recent weeks.
When the government's report on second-quarter GDP growth came in a little less dire than some had expected and Bernanke announced no new easing measures, the door opened for traders to take profits on the market's recent advance.
'The market was primed for Fed action and they didn't get it,' said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsuibishi UFJ in New York.
'There was no sign the Fed expects a double-dip recession,' he said. 'The Fed hasn't agreed on what they need to do.'
With nothing to spur the market higher, prices beat what some saw as an overdue retreat.
Benchmark 10-year Treasury notes fell 1-14/32, their yields rising to 2.65 percent from 2.48 percent Thursday, but still below 2.67 percent where they stood two weeks ago.
The 30-year bond fell more than three points, its yield rising to 3.70 percent from 3.51 percent Thursday.
BUBBLE TROUBLE?
The day's losses highlighted the recent debate over whether the market is over-priced or if a bond bubble has developed.
Though the Treasury market had benefited from seemingly insatiable appetite for bonds among domestic and foreign long-term investors, many have questioned whether there was much value in government debt at these peaks.
Some say current bond prices factor in too great a possibility the U.S. economy will dip back into recession or become mired in a prolonged deflationary period of falling prices, growth and business activity.
'Maybe people have gotten too bearish on the economy and maybe the economic trajectory going into 2011 really isn't going to be that bad,' said Michael Collins, co-portfolio manager for Core Plus Fixed Income strategies at Prudential Fixed Income in Newark, New Jersey.
'In recent weeks, people capitulated and bought Treasuries and duration, and it feels like that part of the market was overbought,' Collins said.
A sharply negative 30-year swap spread was one sign of that, he said.
'That told me there was a lot of demand for long duration in the market,' he said. 'Maybe too much.'
(Additional reporting by Burton Frierson; Editing by Leslie Adler) Keywords: MARKETS BONDS (ellen.freilich@thomsonreuters.com; +1-646-223-6309; Reuters Messaging: ellen.freilich.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, Aug 27 (Reuters) - U.S. Treasuries prices fell on Friday after Federal Reserve Chairman Ben Bernanke signaled no new bond buying by the U.S. central bank was imminent.
The news prompted the biggest one-day selloff in three months, but yields still only rose to levels just shy of where they were two weeks ago.
Weak economic data and hopes that Bernanke would specify some new monetary easing measures had propelled bond prices higher during the week and in the hours leading up to his Friday speech.
Although the Fed did say on Aug. 10 it would use cash from maturing mortgage bonds it holds to buy more government debt, the market was gearing up for even more quantitative easing due to a poor run of economic indicators in recent weeks.
When the government's report on second-quarter GDP growth came in a little less dire than some had expected and Bernanke announced no new easing measures, the door opened for traders to take profits on the market's recent advance.
'The market was primed for Fed action and they didn't get it,' said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsuibishi UFJ in New York.
'There was no sign the Fed expects a double-dip recession,' he said. 'The Fed hasn't agreed on what they need to do.'
With nothing to spur the market higher, prices beat what some saw as an overdue retreat.
Benchmark 10-year Treasury notes fell 1-14/32, their yields rising to 2.65 percent from 2.48 percent Thursday, but still below 2.67 percent where they stood two weeks ago.
The 30-year bond fell more than three points, its yield rising to 3.70 percent from 3.51 percent Thursday.
BUBBLE TROUBLE?
The day's losses highlighted the recent debate over whether the market is over-priced or if a bond bubble has developed.
Though the Treasury market had benefited from seemingly insatiable appetite for bonds among domestic and foreign long-term investors, many have questioned whether there was much value in government debt at these peaks.
Some say current bond prices factor in too great a possibility the U.S. economy will dip back into recession or become mired in a prolonged deflationary period of falling prices, growth and business activity.
'Maybe people have gotten too bearish on the economy and maybe the economic trajectory going into 2011 really isn't going to be that bad,' said Michael Collins, co-portfolio manager for Core Plus Fixed Income strategies at Prudential Fixed Income in Newark, New Jersey.
'In recent weeks, people capitulated and bought Treasuries and duration, and it feels like that part of the market was overbought,' Collins said.
A sharply negative 30-year swap spread was one sign of that, he said.
'That told me there was a lot of demand for long duration in the market,' he said. 'Maybe too much.'
(Additional reporting by Burton Frierson; Editing by Leslie Adler) Keywords: MARKETS BONDS (ellen.freilich@thomsonreuters.com; +1-646-223-6309; Reuters Messaging: ellen.freilich.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.