U.S. 10-year yield tops 2% as Bernanke says Fed may taper buys

Treasuries fell, pushing 10-year note yields above 2% for the first time since March, after Federal Reserve Chairman Ben S. Bernanke told Congress the Fed may cut the pace of bond purchases at the next few meetings if policy makers see indications of sustained economic growth.

U.S. debt rose earlier as Bernanke told Congress the economy remains hampered by unemployment and government-spending cuts and that reducing stimulus too soon would endanger the recovery. Many Fed officials said more progress in the jobs market is needed before any slowing to the pace of quantitative easing, according to meeting minutes. Benchmark yields rose as a report showed sales of previously owned U.S. homes rose in April to the highest level in more than three years.

“The market seized upon the bit of the Q&A exchange about the anticipated timeframe about an adjustment to QE,” said Christopher Sullivan, who oversees $2.1 billion as chief investment officer at United Nations Federal Credit Union in New York. “The Fed remains highly data dependent. The market is very skittish right now.”

U.S. 10-year notes yields rose 10 basis points, or 0.10 percentage point, to 2.02% at 4:01 p.m. New York time, according to Bloomberg Bond Trader data. The yield reached 2.04%, the most since March 15. The price of the 1.75% security due in May 2023 lost 29/32, or $9.06 per $1,000 face amount, to 97 1/2.

Thirty-year bonds fell more than three points, with the yield rising eight basis points to 3.21%.

Market Measure

Bond market measures from overnight index swaps projects the federal funds rate may see its first 25 basis point increase in April 2015, compared with a forecast of August 2015 based on figures on May 13. The Fed has held its target interest rate at a record low zero to 0.25% since December 2008.

Treasuries rose earlier as Bernanke referenced the risks associated with ending easy monetary policy.

“A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Bernanke said today in testimony prepared for a hearing at the Joint Economic Committee of Congress in Washington.

In response to questions, Bernanke also indicated the central bank may reduce its stimulus at some point.

“If we see continued improvement, and we have confidence that that is going to be sustained, in the next few meetings we could take a step down in our pace of purchases,” Bernanke said.

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