TREASURIES-Bonds fall after Fed fails to expand purchases

* Bernanke signals no new bond buying by Fed imminent

* Not-so-grim GDP data encourages profit-taking

* One-day tumble erases the week’s gains

* Yields near highest levels in two weeks
(Adds comment, updates prices, changes byline)

By Ellen Freilich

NEW YORK, Aug 27 (BestGrowthStock) – U.S. Treasuries prices fell on
Friday after Federal Reserve Chairman Ben Bernanke signaled no
new bond buying by the U.S. central bank was imminent.

The news prompted the biggest one-day selloff in three
months, but yields still only rose to levels just shy of where
they were two weeks ago.

Weak economic data and hopes that Bernanke would specify
some new monetary easing measures had propelled bond prices
higher during the week and in the hours leading up to his
Friday speech.

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.

When the government’s report on second-quarter GDP growth
came in a little less dire than some had expected and Bernanke
announced no new easing measures, the door opened for traders
to take profits on the market’s recent advance.

“The market was primed for Fed action and they didn’t get
it,” said Chris Rupkey, chief financial economist at Bank of
Tokyo/Mitsuibishi UFJ in New York.

“There was no sign the Fed expects a double-dip recession,”
he said. “The Fed hasn’t agreed on what they need to do.”

With nothing to spur the market higher, prices beat what
some saw as an overdue retreat.

Benchmark 10-year Treasury notes (US10YT=RR: ) fell 1-14/32,
their yields rising to 2.65 percent from 2.48 percent Thursday,
but still below 2.67 percent where they stood two weeks ago.

The 30-year bond (US30YT=RR: ) fell more than three points,
its yield rising to 3.70 percent from 3.51 percent Thursday.

BUBBLE TROUBLE?

The day’s losses highlighted the 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.

“Maybe people have gotten too bearish on the economy and
maybe the economic trajectory going into 2011 really isn’t
going to be that bad,” said Michael Collins, co-portfolio
manager for Core Plus Fixed Income strategies at Prudential
Fixed Income in Newark, New Jersey.

“In recent weeks, people capitulated and bought Treasuries
and duration, and it feels like that part of the market was
overbought,” Collins said.

A sharply negative 30-year swap spread was one sign of
that, he said.

“That told me there was a lot of demand for long duration
in the market,” he said. “Maybe too much.”
(Additional reporting by Burton Frierson; Editing by Leslie
Adler)

TREASURIES-Bonds fall after Fed fails to expand purchases