Fed chairman calls labor-market stagnation ‘a grave concern’
By Carla Mozee and Polya Lesova, MarketWatch
LOS ANGELES (MarketWatch) — Treasury prices rose Friday after Federal Reserve Chairman Ben Bernanke reiterated that the central bank could purchase more government bonds to help boost the U.S. economy.
Yields on 10-year notes 10_YEAR +0.51% , which move inversely to prices, fell 6 basis points to 1.558%.
A basis point is one one-hundredth of a percentage point.
Thirty-year bond yields 30_YEAR +0.11% declined 7 basis points to 2.674% and yields on 5-year notes 5_YEAR 0.00% pulled back 5 basis points to 0.622%.
Speaking at the Fed’s retreat in Jackson Hole, Wyo., Bernanke called stagnation in the U.S. labor market a “grave concern” and said he was open to using more quantitative easing as needed to help the economy. But Bernanke didn’t make a firm pledge to take action. See more about Bernanke's speech.
“Clearly, bond purchases are on the table, and it looks like it’s only a matter of time and that’s why Treasury [prices] made that move” higher, said Paul Montaquila, head of fixed-income trading at Bank of the West.
”The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” Bernanke said. See streaming coverage of the Jackson Hole conference.
On Wall Street, U.S. stocks initially trimmed gains then jumped to intraday highs as Bernanke’s comments followed media reports that the European Commission plans to give the European Central Bank supervisory powers over the euro-area banking sector. The Dow Jones Industrial Average DJIA +0.69% finished up 90 points to 13,090.84 and the S&P 500 Index SPX +0.51% gained 0.5%. More on Friday's action in U.S. stocks.
“Equities love the backstop,” said Montaquila. “As long as [Bernanke is] standing there with that ax saying, ‘I’ll step into the Treasury market and buy whenever I think it’s right, or whatever I think I need to,’ it’s an excuse to buy stocks.”
Ahead of the speech, investors had scaled back expectations that Bernanke would hint at any kind of action in a significant enough way to boost investor sentiment. Fed officials will meet on Sept. 12-13 to set monetary policy, and Montaquila said expectations for guidance from the Fed coming out of that meeting on possible action will rise, particularly as more economic data roll in. Read about experts calling for Fed reform of policy guidance.
Before the Fed’s September meeting, the highly anticipated monthly U.S. jobs report will be released, as will the ECB’s monetary-policy decision. The ECB’s decision is slated to arrive next Thursday and the jobs report is due the following day.
At the Jackson Hole meeting in 2010, Bernanke hinted at a second round of quantitative easing. More purchases of Treasurys by the central bank topped his list of options, with Bernanke saying they would ease financial market conditions.
For the month, 10-year yields are up from 1.49% at the end of July, almost perfectly reversing the decline in that month. Thirty-year yields have risen from 2.58% and 5-year yields are up from 0.59%.
Treasurys of all maturities have fallen 0.63% in the month through Wednesday, according to an index compiled by Bank of America Merrill Lynch.
Carla Mozee is a reporter for MarketWatch, based in Los Angeles.
Polya Lesova is MarketWatch's New York deputy bureau chief.
