By Laura Mandaro and Sue Chang, MarketWatch
SAN FRANCISCO (MarketWatch) — Treasury prices slid Monday, sending yields higher, as a second-day assessment of Federal Reserve Chairman Ben Bernanke’s remarks and stronger U.S. spending data buoyed stocks and spurred a flight out of safety assets.
Yields on the 10-year note 10_YEAR +3.28% rose 5 basis points to 2.25%. Ahead of the U.S. spending data, they had traded at 2.24%, up slightly from Friday, when yields had dropped following Bernanke’s highly anticipated speech at the yearly Jackson Hole, Wyo., conference of central bankers.
Yields move inversely to prices, and one basis point is 1/100th of a percentage point.
“The Treasury market is trading lower in price and higher in yield as investors, once again, extract themselves from the safe haven trade and move into other investment,” Kevin Giddis, fixed-income analyst at Morgan Keegan, wrote in his daily commentary.
Bernanke didn’t use the speech to float any future stimulus measures, avoiding a replay of last year’s Jackson Hole speech, when he had signaled plans for a second round of quantitative easing.
This year’s speech, however, contained plenty to generate speculation about future Fed actions — including an advisory that the Fed’s September meeting would be expanded to two days, fostering talk that policy makers could embark on more easing action at that meeting.
”The combination of a relatively dismal assessment of the economy, benign inflation expectations, and an expanded FOMC meeting in September to two days and updated forecasts (presumably), left the distinct impression that more accommodation is in fact forthcoming,” said analysts at CRT Capital Markets.
Yields on the 2-year note 2_YEAR +10.20% were up 2 basis points at 0.21%.
“Based on the market direction, the Fed, by doing nothing, looks to have offered the most confidence building action in quite some time,” Giddis said.
Treasurys sold off more, sending yields higher, after the Commerce Department said consumer spending climbed 0.8% in July, matching February’s rate as the strongest since the summer of 2009. Read more on income and spending.
Stocks started out sharply higher. The Dow Jones Industrial Average DJIA +1.53% was up 1.4% to 11,440.97. The S&P 500 SPX +1.84% gained 1.7% to 1,196.78. Read MarketWatch’s stock roundup
The dollar DXY -0.11% gave ground and gold GC1Z -0.28% reversed lower, falling $9 to trade at $1,787.40 an ounce.
Bonds, gold and the dollar are often viewed as safe places to store principal if economic uncertainty pressures so-called risk assets such as stocks and oil.
Trading volumes in many markets was expected to be light with London closed for a holiday and much of the New York City area facing delayed commutes in the aftermath of Hurricane Irene.
