By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices rose Friday, pushing yields down, ahead of a speech by Federal Reserve Chairman Ben Bernanke, who’s expected to emphasize that the central bank has tools available to support growth but that the economy doesn’t need officials to deploy them at this time.
Yields on 10-year notes 10_YEAR -3.18% , which move inversely to prices, fell 6 basis points to 2.17%. A basis point is 1/100th of a percentage point.
Thirty-year bond yields 30_YEAR -2.38% fell 6 basis points to 3.54%.
Yields on 2-year notes 2_YEAR -3.70% slipped 2 basis points to 0.20%. They’ve stayed in the tightest range in the weeks since the Fed, at its last policy meeting, said it would keep interest rates low for two years, effectively making 2-year yields a “risk free” rate, bond investors have said.
Bernanke will open a Fed conference in Jackson Hole, Wyo., with a speech at 10 a.m. Eastern.
Many economists don’t even want Bernanke to announce new policy measures — or at least not only to please the stock market. See recent story on Bernanke, Jackson Hole.
“While we do not expect the chairman to announce another round of asset purchases just yet (though some observers wonder the efficacy another round of purchases would have on economic growth going forward), we doubt that the Federal Reserve is likely to sit by idly as the U.S. economy moves toward ‘stall speed,’“ said strategists at Brown Brothers Harriman.
“Against this backdrop, we suspect that the Fed is likely to outline a range of potential policy actions,” they wrote in a note.
In any case, Bernanke’s speeches at Jackson Hole tend to make for a volatile day in the market, but ultimately lead to a bond rally more than half of the time. Read blog post on Treasury volatility, Jackson Hole.
Earlier Friday came a report that added to the pile of data indicating the economy is growing more slowly. The Commerce Department said U.S. gross domestic product grew 1% in the second quarter, revised down from an earlier estimate and a little weaker than some economists expected. Read more on U.S. GDP.
If GDP growth had fallen under 1%, that would make the economy “incredibly vulnerable, where any exogenous shock can push us into a technical double-dip recession,” said John Briggs, a bond strategists at RBS Securities.
The problem comes when weak U.S. growth gets coupled with continued strains in Europe that have spread to include not only sovereign debt but worries about the region’s banking system and a potential liquidity crisis, and potentially slower growth globally, making countries unable to finance themselves.
“Once the articles and commentaries on Bernanke are written, investors will still have to deal with the above underlying fundamentals and the long list of those I have not touched on,” Briggs wrote in a note. “It is these, along with the Fed’s new on-hold policy in reaction to them, that keep us buying dips in Treasurys.”
