Wall Street Journal........owned by the Faux News Fool.Treasury bonds sold off Friday, pushing up the benchmark 10-year note's yield toward 2%, as anxiety mounted that the Federal Reserve would reduce its bond-buying spree in coming months.
The price weakness capped a third straight weekly loss for the bond market ahead of Fed Chairman Ben Bernanke's testimony before lawmakers next Wednesday.
Mr. Bernanke could spark further selloff or stem the bleeding in the bond market depending on how he casts his stance on the monetary stimulus outlook, traders said.
The benchmark 10-year Treasury note fell by 25/32 in price, pushing up its yield to 1.951%. The yield rose about 0.05 percentage point for the week. Bond prices move inversely to their yields.
The central bank's steady purchases$45 billion a month in Treasury bonds since the start of the yearhave been a major factor holding bond yields near historic lows. The Fed has $1.86 trillion in Treasury bonds, the world's biggest holding of U.S. government debt.
Investors are worried that bond yields could jump if a major buyer retreats at a time when riskier assets have provided much higher returns. U.S. stocks have hit record highs this month.
Debate about when the Fed will start removing its punch bowl has grown for months. But the angst intensified over the past week following a story in The Wall Street Journal that the central bank has mapped out an exit strategy for its unconventional monetary stimulus
A further boost on the anxiety came Thursday afternoon from Federal Reserve Bank of San Francisco President John Williams who believes that the central bank may taper buying Treasury bonds as soon as this summer.
Mr. Williams, who doesn't vote on interest-rate policy this year, had advocated for more monetary stimulus to support the economic growth, a stance known as being an interest-rate "dove." Thursday's comment indicated a significant shift in his stance toward the "hawk" campwhere some Fed officials have pushed for the withdrawal of monetary stimulus to prevent inflation risks in the longer term.
"Some doves seem to be swaying," said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. "The current economic fundamentals don't justify the 10-year yields below 1.85."
Friday's data, which added to the selloff in Treasury bonds, supported bond bears' views that it is time for the central bank to cut back on monetary stimulus.
A gauge of U.S. consumer sentiment hit the highest level since July 2007. A measure of U.S. growth momentum in the coming months posted the biggest increase since February 2012.
After falling to this year's low of 1.61% on May 1, the 10-year note's yield has climbed, touching a two-month peak of 1.985% on May 15.
Mr. Bernanke next week will be a major factor shaping the fortune of bond investors.
"The bond market will sell off if Bernanke indicates that the unemployment rate has come down sufficiently and that he sees enough economic progress to taper the asset purchases," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.
Mr. Milstein said Treasury bonds would rally if Mr. Bernanke states that the economic data of late has been mixed at best, and inflation below the central bank's 2% target and further gains in employment are needed before the Fed eases up on asset purchases.
Some traders remain skeptical that the Fed will move to cut back on bond purchases before the end of the year as the economic outlook remains uncertain.
Bond prices rallied in the previous two sessions fueled by disappointing economic releases. Manufacturing activity in both New York and Mid-Atlantic regions fell, factory orders dropped and initial jobless claims rose.