US Bonds Gain After Bernanke Calms Concerns
That declaration—at the National Bureau of Economic Research conference on Wednesday—reassured financial markets that the U.S. central bank would keep short-term interest rates near zero for an extended period, even if it trims the size of its bond purchases aimed at stimulating the economy.
Traders said Bernanke's remarks at least indirectly assisted the Treasury's $13 billion 30-year bond auction, reducing nervousness about taking on that much duration amid uncertainty about the near- and medium-term course of monetary policy.
"If the 30-year auction had taken place a day earlier, (before Bernanke spoke), it would have been a more stressful event," said Michael Lorizio, senior fixed-income trader at John Hancock Asset Management.
(Read More: Will Investors Finally Buy Bernanke's Explanation?)
The 30-year bond auction was the last of three auctions of coupon-bearing securities—totaling $66 billion—that the Treasury conducted this week. The end of the auctions also contributed to the Treasury market's better tone.
With the auctions completed, people "breathed a sigh of relief," Lorizio said. Bernanke's reassurances, which took note of low inflation and tight fiscal policy as being two of the factors requiring highly accommodative monetary policy for the foreseeable future, also supported risk assets.
Consequently, the stock market's gains in response to Bernanke may have restrained the rally in safe-haven U.S. debt, traders said. Major Wall Street stock indexes rose more than 1 percent. Some participants might also have been disappointed that the Fed's purchase of Treasury Inflation Protected Securities, or TIPS, was less aggressive than some had hoped, traders said.
The New York Fed bought $1.380 billion in TIPS maturing from July 15, 2017 to February 15, 2043, accepting just a little over one-fourth of the bids submitted. Meanwhile, the U.S. Treasury Department said it will sell $15 billion in 10-year TIPS next Thursday.
Short-term interest rate futures implied traders reduced their expectations of a Fed rate hike next year. An unexpected rise in U.S. jobless claims in the latest week was another factor behind the bid for Treasurys.
"A 16,000 jump in new claims to 360,000 is a long way from the year's low of 327,000 new claims, two months ago at the end of April," said Chris Rupkey, managing director and chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York.
Since the Fed first signaled a possible pullback in stimulus, financial markets have been roiled, with bond yields here and abroad surging.
On Monday, benchmark Treasury yields touched their highest levels in nearly two years.
Recently, Bernanke and other top Fed officials have sought to soothe the concerns of market participants and that has allowed bond yields to retreat from their recent peaks.
(Read More: More File for US Claims; Inflation Still Tame)
"We tend to be range bound in rates at this point in the next month or two," said David Lafferty, chief investment strategist at Natixis Global Asset Management in Boston, which oversees about $785 billion.
On above-average volume, benchmark 10-year Treasury notes rose 8/32 in price, their yields easing to 2.58 percent from 2.61 percent late Wednesday.
The 30-year bond last traded up 2/32, its yield easing to 3.638 percent from 3.642 percent on Wednesday. Mortgage-backed securities also posted gains after Bernanke's remarks. Prices on 3.5-percent coupon MBS supported by 30-year loans guaranteed by Fannie Mae were up 15/32, yielding 3.356 percent.
(Read More: Fed Officials Showed Worry About Easing Policy)