Bonds bounce back on Bernanke
Treasury investors get bullish after the Fed chief hints that a pause in rate hikes may be likely; dollar weakens.

NEW YORK ( - Treasury prices rebounded Thursday from two straight days of selling after Federal Reserve Chairman Ben Bernanke said central bank policy-makers could pause their interest rate boosting campaign at some point.

The dollar fell against the euro and the yen.

Federal Reserve Chairman Ben Bernanke
Federal Reserve Chairman Ben Bernanke
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The 10-year Treasury note rose 7/32 to 95-18/32 to yield 5.08 percent, down from 5.10 late Wednesday. The 30-year bond added 3/32 to 89-24/32 to yield 5.18 percent, relatively unchanged from the previous session.

The five-year note climbed 8/32 to yield 4.96 percent, and the two-year note increased 5/32, yielding 4.90 percent.

Bond prices fell in the early going after the Labor Department said new jobless claims rose by 11,000 last week to 315,000. The report exceeded economists' expectations of a rise to 305,000, but still suggested a robust labor market. (Full story.)

Treasuries bounced back later in the morning after Bernanke testified before the Congressional Joint Economic committee. Bernanke said record high oil prices may pose a risk to inflation but that he expected the pace of the U.S. economy to slow slightly during the coming year.

Bernanke also said further rate hikes would "increasingly dependent" on economic data and that a pause in the Fed's tightening policy could occur at some point. (Full story.)

Fed policy-makers "will continue to monitor the incoming data closely to assess the prospects for both growth and inflation. In particular, even if in the committee's judgment the risks to its objectives are not entirely balanced, at some point in the future the committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook," he said.

Bond investors took comfort in Bernanke's comments, sending prices higher and lowering corresponding yields. The central bank has steadily raised the target for its key short-term interest rate since June 2004.

Economists widely expect the central bank's policymakers to raise their short-term rate target to 5 percent next month, but whether they'll keep boosting rates after that remains unclear.

Looking ahead to Friday, investors will be closely watching the first take on first-quarter gross domestic product, the broadest measure of the nation's economic activity.

In currency trading, the euro bought $1.2535, up from $1.2454 late Wednesday. The dollar bought 114.13, down from 114.73 in the previous session.

--from staff and wire reports


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