Treasuries Tumble as Bernanke Jawbones

BERNANKE JAWBONING SENDS TREASURIES TUMBLING

It looks like Ben Bernanke has taken a page out of the Alan Greenspan book on controlling the money supply, and started some jawboning of his own. We are all familiar with Alan Greenspans methodology or at least his irrational exuberance speech in 1996, and it appears that Mr. Bernanke will be doing plenty of jawboning as well.

It is not unusual for a fed chief to rely on carefully worded, and strategically placed phrases to control the money supply. In the past, jawboning by a fed chief has caused a selloff in the markets on one end of the spectrum, and a run up of those same markets at the other end.

So now it seems Mr. Bernanke is doing some jawboning to preempt a possible inflationary surge in the not too distant future. His comments sparked a wide spread sell off in the bond markets as investors and traders wondered if interest rate hikes may come sooner than later. It could be though that Ben has just pushed that preemptive rate hike just a little farther back with his jawboning today.

He is still talking about an extended period of low rates but any time they use the tightening word it just brings to mind the fact that we may be getting closer to the start of a whole new cycle.

The two year notes fell 5/32 to a yield of .99% as opposed to the previous close of .90%

Benchmark ten year notes fell 1-2/32 yielding 3.38% on the close. The previous close was at 3.26%.

The thirty year long bond fell 2-11/32 on the day with a yield of 4.23%. The previous day’s close put the benchmark bonds at 3.89%

Bernanke's comments were the latest in a series of statements that appear aimed at warning markets not to expect easy monetary conditions to last forever to ward off inflation. The central bank is not expected to hike interest rates until after the jobless rate in the US has peaked at the end of the year or early 2010.

The Feds certainly have a tough job to do here. Not only do they want to stimulate and stabilize the economy, but they have to be aware of impending inflation. Bernanke should be up to the task given his academic background of studying the Great Depression.

We are certain to see further jawboning as Bernanke tempers the market and gets ready to enter a new inflationary cycle.

Good Luck and Happy Investing