Treasury yields edge up from 60-year lows

NEW YORK: Some US Treasuries posted slight losses on Friday, nudging yields up from their lowest levels in at least 60 years, but investors remained jittery before next week's global central bank conference.

"We've had some really big moves this week. It's hard to extend gains after what we've seen," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco. "We're waiting for more data and then Bernanke next week."

The Federal Reserve will hold its annual global banking conference in Jackson Hole, Wyoming, starting at the end of next week, and markets are particularly keen to hear remarks from Fed Chairman Ben Bernanke.

The benchmark 10-year note slipped 1/32 in price on Friday, its yield edging up to 2.07 percent after Thursday's rally in bond prices pushed yields down as far as 1.98 percent, their lowest in at least 60 years and down from 3 percent less than a month ago.

The 30-year Treasury bond continued to benefit from investors extending duration to capture a higher yield. It rose 20/32 in price, causing its yield to fall to 3.39 percent. It was the bond's biggest weekly gain since December 2008.

"Everybody's talking about Jackson Hole and about what can happen overseas over the weekend," said Marty Mitchell, head of government bond trading at Stifel, Nicolaus in Baltimore, Maryland.

Lingering fears about Europe's debt crisis and speculation about whether not Japanese authorities will intervene to halt the surge of the yen are among the market's concerns.

Perceptions about the US and the euro zone outlook are likely to guide trading until the Jackson Hole conference.

Any news that undermines confidence in the economy or in the financial system would hurt stock prices and spur a bid for safe-haven US government debt.

Better-than-expected economic news could give the equity market a lift, though likely a brief one, which in turn, would damp demand for safe-haven US government debt.

But since the economic reports due in the coming week are not the most influential ones -- though a second estimate of second-quarter gross domestic product and the weekly figures on new claims for unemployment insurance will get attention -- they are highly unlikely to change the market's direction in any meaningful way.

That leaves the Federal Reserve. US fiscal policy is now the prisoner of highly partisan politics so markets are focused on what monetary prescriptions Bernanke might offer in his talk at Jackson Hole.

The Fed can act, though it, too, is not fully insulated from partisan politics. This week the Bernanke was attacked by Texas Governor Rick Perry, a Republican presidential candidate, who said it would be "treasonous" if the Fed chairman "prints more money between now and the election" in November 2012.

In an effort to encourage lending and spur economic activity, the Bernanke-led Fed has pursued one of the most extended periods of cheap money in US history, adding close to $3 trillion in US debt to its balance sheet in order to add liquidity to the financial system.

What financial markets want to know is whether Bernanke will announce a new round of monetary stimulus in an attempt to keep the economy from slipping into another recession.

Fears of another US recession overshadowed trading on Friday, a day after a dismal reading on regional business activity. There were no signs of a solution to the euro zone financial problems that have dogged investor sentiment.

Next week, the government will sell a total of $99 billion worth of two-, five- and seven-year debt in three auctions. The offerings will test market appetite for Treasury debt at current lofty price levels, especially the shorter maturities.

Copyright Reuters, 2011