TREASURIES-Bernanke delivers blow to bond-buying hopes

* Bernanke signals no new bond buying by Fed imminent

* Long bonds down three points but most maturities hit

* Not-so-grim GDP data encourages profit-taking
(Adds quote, background)

By Burton Frierson

NEW YORK, Aug 27 (BestGrowthStock) – U.S. Treasuries prices fell
sharply on Friday after Federal Reserve Chairman Ben Bernanke
signaled no new bond buying by the U.S. central bank was
imminent, triggering the biggest sell-off in three months.

Although Bernanke did mention such purchases as a
possibility, investors found nothing in his comments to
indicate the Fed has any immediate plans to stimulate the
slowing economy through an expansion of current bond buying.

For a market already at rich levels, this was an important
nuance that further fueled a sell-off ignited after data
earlier on Friday showed a revised picture of U.S. economic
growth was not quite as weak as expected in the second
quarter.

Although the Fed did say on Aug. 10 it would use cash from
maturing mortgage bonds it holds to buy more government debt,
the market was gearing up for even more quantitative easing due
to a poor run of economic indicators in recent weeks.

“Apparently there was a lot of unfounded hope that Bernanke
was going to indicate that additional quantitative easing was
going to take place sooner rather than later,” said Mary Ann
Hurley, vice president of fixed-income trading at D.A. Davidson
& Co in Seattle.

“He clearly indicated that it will happen if needed, and
that ‘if needed’ is very important.”

The 30-year long bond (US30YT=RR: ) was down three points in
price on the day, yielding 3.67 percent versus Thursday’s close
of 3.51 percent.

Broadly speaking, the bond market was on track for its
biggest one-day sell-off in three months, based on the rise in
10- and 30-year yields.

However, even if the sell-off holds, the 30-year bond yield
would only be about one basis point higher on the week,
reflecting the intensity of the rally in previous days.

The benchmark 10-year note (US10YT=RR: ) fell more than a
point and was last down 1-14/32 in price, yielding 2.65 percent
versus Thursday’s close of 2.48 percent.

If the sell-off gains momentum, traders will be watching to
see if support holds at 2.67 percent in 10-year notes.

BUBBLE TROUBLE?

The ferociousness of the day’s losses refocuses attention
on recent debate over whether the market is over-priced or if a
bond bubble has developed.

Though the Treasury market had benefited from seemingly
insatiable appetite for bonds among domestic and foreign
long-term investors, many have questioned whether there was
much value in government debt at these peaks.

Some say current bond prices factor in too great a
possibility the U.S. economy will dip back into recession or
become mired in a prolonged deflationary period of falling
prices, growth and business activity.

“We are short in duration and well underweight Treasuries,
so we obviously are disagreeing with the prices as they
currently stand,” said Andrew Johnson, managing director, chief
investment officer for investment grade strategies at Neuberger
Berman in Chicago, which has $79 billion in fixed income assets
under management.

“The most likely outcome is that this is a soft patch in
the economy and that the continued easy monetary policy will
ultimately work its magic.”
(Additional reporting by Richard Leong; Editing by James
Dalgleish)

TREASURIES-Bernanke delivers blow to bond-buying hopes