Treasury Yields Plunge Further on Bernanke Speech

U.S. Treasurys prices rose sharply Monday, pushing long-term yields to their lowest in more than five decades, after Federal Reserve Chairman Ben Bernanke said more interest rate cuts were possible and hinted that the Fed could use other methods to aid growth.

Bernanke said cuts beneath the Fed's current target of 1 percent for its benchmark overnight funds rate were "certainly feasible", and suggested that the Fed would also use other unconventional measures to aid growth.

Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co in New York, said Bernanke's mention of the strategy of targeting long-term rates "pushed the yield on 10-year Treasurys down an additional (18 basis points) on the day."

Benchmark 10-year Treasury notes, which were up 24/32 before Bernanke spoke, nearly tripled their gains by the time Bernanke finished delivering his prepared remarks.

Ten-year Treasury yields, which move inversely to price, fell to 2.67 percent, the lowest in at least five decades, from 2.85 percent earlier and from 2.92 percent late Friday.

In addition, a House Democratic aide said that Democrats in the House likely will seek passage next month of an economic stimulus bill costing about $500 billion, a smaller package than some economists have recommended.

Earlier on Monday, House Speaker Nancy Pelosi told reporters she hoped Congress would have an economic stimulus bill ready for President-elect Barack Obama to sign when he takes office on Jan. 20. She did not provide details.

Continued worries about the shrinking economy spurred investors to seek the safety of government debt.

Investors were also buying to square up their portfolios at month end, analysts said,

"You are still seeing the recession fear," said Kim Rupert, managing director of global fixed-income analysis at Action Economics in San Francisco. "Fear is the overriding factor."

Benchmark yields in November experienced their biggest monthly fall in at least 12 years, according to Reuters data, as investors have stampeded into lower-risk investments on signs of ever-deepening economic distress.

"Buying (in the long end) that closed 10-year (yields) to the lowest close ever Wednesday continues today," said Andrew Brenner, senior vice president at MF Global in New York.

Thirty-year bonds traded over 3 points higher in price for a yield of 3.44 percent.

Continuing news of the attacks this week in Mumbai was also supportive of bond prices, analysts said.

The bond market traded in an abbreviated session, with the Securities Industry and Financial Markets Association recommending an early bond market close at 2 p.m. Eastern time.

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