Treasurys fall slightly as stocks rally

Treasurys fall slightly as stocks rally

	Published : Fri, 31 Aug 2007 19:48 By : Agencies Print this Story

NEW YORK (AP) - Treasury prices closed with minor losses Friday after investors largely spent the session parsing comments from Federal Reserve Chairman Ben Bernanke and finding some signals that the central bank will cut rates if necessary to pacify markets.

Ahead of the three-day holiday weekend, investors also adjusted their positions, which tends to leave prices near the flat line. Earlier in the session, Treasurys fell harder and their yields rose more as a comeback in global equities markets siphoned money away from bonds. The bond market closed one hour early for the Labor Day holiday.

Appearing at an annual Fed conference in Jackson Hole, Wyo., Bernanke said the central bank must take financial market disruptions into account in setting policy and will take action to ease the recent turmoil, if necessary.

The Fed 'stands ready to take additional steps' to boost liquidity and 'will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets,' he said.

'The speech just confirmed other communications from Bernanke that the Fed is prepared to do what is needed to allow markets to be funded,' said Roger Bayston, Senior Vice President of the Franklin Templeton Fixed Income Group. 'The bottom line is that the markets need funds to trade. There has to be a mechanism through which the markets can get funds and the Fed will provide that.'

The benchmark 10-year Treasury note lightened its losses to close down 4/32 at 101 25/32 with a yield of 4.53, up from late Thursday's 4.50 percent. The 30-year long bond finished unchanged at 102 21/32 with a 4.83 percent yield, unchanged on the session.

The 2-year note closed 2/32 lower at 99-23/32 with a 4.14 percent yield, up from 4.07 percent.

Bernanke's remarks were viewed by some investors as implying that the Fed is getting ready to cut the key overnight rate at its September meeting. But Bernanke also made clear that it is not the Fed's main job to protect lenders and investors from the consequences of their financial decisions.

Since Bernanke took over the top Fed job in early 2006, the central bank consistently has appeared more preoccupied with fighting inflation than with stimulating a slowing economy and soothing markets.

The Fed lifted rates 17 times in a row between June 2004 and June 2006, leaving the benchmark federal funds rate at 5.25 percent, and has been on hold ever since.

On Friday the Fed leader said the housing market is less sensitive than some sectors to short-term rates, an observation that could be interpreted to say that the bank is still reluctant to cut rates.

Both the stock and bond markets have been hoping for a signal that the Fed may reduce rates soon. However, Bernanke's speech did not drive price action in the Treasury market; throughout much of August, Treasurys, seen as a safe haven, have rallied amid a wobbly stock market and severe deterioration in other credit markets, particularly home loans, corporate bonds and commercial paper.

Earlier new Commerce Department data showed inflation was moderate in July as personal income and spending increased.

Personal income rose 0.5 percent and spending advanced 0.4 percent in July, both a bit above the estimates of Wall Street economists. Headline and core inflation, which strips out food and energy prices, both rose just 0.1 percent, well within the 1 percent to 2 percent target the Fed is believed to use.

Other reports gave a mixed picture of U.S. economic strength. Factory orders shot up 3.7 percent last month, startling some economists who expected a gain closer to just 1 percent. The final University of Michigan sentiment reading for August was 83.4, down from 90.4 in July. And the Chicago purchasing managers index, a gauge of manufacturing strength, rose a bit to 53.8 this month from 53.4 in July.