Reply #45: U.S. Treasurys flatten as Bernanke speaks [View All]

[54anickel]

Fed chief is optimistic about productivity, says inflation risks persist

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B5EC84F52%2DDC2D%2D41F2%2D8FCA%2D42C45FB3527D%7D&source=blq%2Fyhoo&dist=yhoo&siteid=yhoo

NEW YORK (MarketWatch) -- Treasury prices gave up gains to trade at nearly flat levels Tuesday afternoon, after Federal Reserve Chairman Ben Bernanke predicted moderate growth with higher productivity and an upside inflation risk.

Another Fed official, Philadelphia Fed President Charles Plosser said rates may be needed to keep inflation under control. The bond market abhors inflation because it eats into the value of fixed-income instruments.

Early price gains also were dented by an unexpected increase in existing-home sales last month; signs of economic strength encourage investors to eschew low-risk instruments like bonds for riskier assets with a potential for higher returns.

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"Yields settled back down to pre-speech levels after a slight pop on the more inflammatory references to inflation risks in both Bernanke's and Plosser's speeches," according to Action Economics.

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Much of his speech appeared designed to gently dampen two of the major fears about the economic outlook-- that the housing market would push the economy into a full-fledged recession, or that inflation pressures were like a smoldering campfire, seemingly controlled but ready to burst up in the next strong wind.

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