By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices turned up slightly, nudging yields down, before Federal Reserve Chairman Ben Bernanke's testimony to Congress, which is expected to be modestly supportive for bonds.
Traders also kept an eye on equities and positive U.S. corporate earnings, which tend to detract from the relative demand for bonds as an alternative asset.
"It's a sideways grind ahead of Bernanke, but one with a bullish tilt," said strategists at CRT Capital Group.
Yields on 10-year notes (UST10Y 2.93, -0.03, -0.91%) , fell 2 basis points to 2.94%, close to a 15-month low. Bond yields move inversely to prices and a basis point is 0.01 percentage point.
Yields on 2-year notes (UST2YR 0.58, -0.01, -1.37%) slipped 1 basis point to 0.57%, near an-all-time low set Tuesday.
"We appear to be in the early throes of developing a new, lower rate range that I'd define as 2.75% to 3.33%" for 10-year yields, said William O'Donnell, head of Treasury strategy at RBS. "I expect this range to persist for the balance of the summer, barring any unforeseen events."
U.S. stocks struggled to hold onto small opening gains, with the Dow Jones Industrial Average (DJIA 10,243, +13.17, +0.13%) up just 7 points.
Bernanke's testimony is expected to begin at 2 p.m. Eastern time.
Bernanke's goal should be to indicate the economic recovery is on track, reinforce the idea that interest rates will be kept low for longer, and indicate the Fed stands ready to take additional actions if necessary," said Tony Crescenzi, a strategist and portfolio manager at Pimco.
News reports have indicated that besides elaborating on the Fed's latest inflation and growth forecasts, Bernanke may discuss other steps the Fed could take to further ease monetary policy if the economy slows more than anticipated.
One of those steps would be lowering or eliminating the interest rate that the Fed pays on excess reserves that banks hold, effectively taking away the incentive to hold the reserves and instead lend them out.
Besides the possibility that the banks still don't lend more, a zero rate would cause "collateral damage" for money-market mutual funds, Crescenzi said.
Another possibility floated, but often shot down, is to resume purchasing U.S. securities, which many consider a form of quantitative easing. That's effectively printing money.
"The hurdle for further quantitative easing is high," O'Donnell said.
And in any case, Bernanke is highly unlikely to announce such a plan during congressional testimony, analysts said.
Data earlier this week showed housing starts fell more than expected and home-builder confidence weakened, adding to growing worries that a pronounced decline in the housing market could limit the economy's recovery. See Tuesday's bond story.
