NEW YORK (MarketWatch) - Treasurys extended their losses in late morning trade Friday as the market focused on recent speeches by regional monetary officials and awaited an address on consumer finance by Federal Reserve Chairman Alan Greenspan. The yield on the 10-year U.S. bond rose to 4.51% from 4.47% in late trade Thursday.
Given a light flow of domestic economic reports this week, the fixed-income market has focused largely on speeches by Fed officials. The selling pressure extended a selloff that began late Thursday, said ABN Amro rate strategist Ken Fan, who noted a dearth of fresh economic news to give the market direction.
The sudden selloff in Treasurys was linked by Fan to remarks by Philadelphia Fed President Anthony Santomero, who indicated he is concerned that the Fed's current program of incremental quarter-point increases may not be effective. "There is a chance that by acting in this attenuated fashion (gradualism) we will undershoot the optimal policy stance," Santomero said. "This can be as costly as overshooting."
Other analysts linked Thursday's Treasury selloff to a sudden intraday drop in the price of crude, while still others said it was largely a technicals-driven yield play. Investors have been eager for indications of the Fed's views on inflation and rates. Greenspan largely avoided those topics in two prior appearances this week. The bond market has been exceptionally nervous about inflation, which eats into the value of fixed-income instruments, ever since the Fed made hawkish comments on the subject two weeks ago.
The remarks triggered speculation that the central bank would adopt a bolder rate-increase policy to cool the economy and head off inflation. In recent trades the two-year note had a yield of 3.76% and the 30-year bond yielded 4.8%.
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