By William L. Watts, MarketWatch
NEW YORK (MarketWatch) — U.S. Treasurys gave back some early gains Friday, pushing yields higher after a Federal Reserve official left the door open to a cutback in the central bank’s bond purchases in October.
The yield on the 10-year Treasury note 10_YEAR -0.33% traded as high as 2.79% but was little changed at 2.75% in recent action, getting a brief lift as Treasurys sank.
The move came after St. Louis Federal Reserve Bank President James Bullard told Bloomberg Television that the October gathering of Fed policy makers would be a “live meeting,” with the possibility that the central bank could begin to taper its bond purchases if justified by economic data.
Treasury yields move in the opposite direction of prices. Yields tumbled on Wednesday after the Fed surprised markets by failing to deliver a widely-expected cut in its $85-billion-a-month pace of bond buys. The price of the 10-year T-note is up by around 1.2% for the week.
“What Bullard is telling us today is that the Fed is keeping all of their options open and despite Wednesday’s decision they are still very close to slowing asset purchases and when the reduction is made, it should be between $15 billion to $25 billion, an amount they feel will put a significant dent into their overall program,” said Kathy Lien, managing director at BK Asset Management.
Treasury yields remain low but have risen sharply over the summer, in part due to growing expectations the Fed would soon begin to slow the pace of bond buys, a first step toward the eventual removal of its extraordinary efforts to stimulate the economy through monetary policy.
For his part, Bullard emphasized his concerns that inflation remains well below the central bank’s 2% target and questioned the wisdom of removing policy accommodation amid such conditions. He downplayed, however, the impact of a “small” tapering of bond purchases and acknowledged that the decision to maintain purchases Wednesday was a close one.
Bullard, who is also scheduled to deliver a speech in New York, is one of several Fed officials whose pronouncements will be closely followed Friday.
Kansas City Fed President Esther George, who was the lone dissenter in Wednesday’s decision to hold bond purchases steady, speaks at 12:30 p.m. Eastern to the Shadow Open Market Committee, a group of monetarist-oriented economists. See: Fed ‘splainin starts Friday.
Federal Reserve Governor Daniel Tarullo is set to talk about financial market regulation at 12:40 p.m. at Yale Law School, while Minneapolis Fed President Narayana Kocherlakota is set to speak about options pricing at the NYU Stern School of Business at 1:45 p.m.
The yield on the two-year Treasury note 2_YEAR -1.17% was little changed at 0.334%, while the 30-year T-bond yield 30_YEAR -0.55% was also flat at 3.80%.
William L. Watts is MarketWatch's senior markets writer, based in New York. Follow him on Twitter @wlwatts.
