Treasury yields rise as investors shift gears

By Ben Rooney, staff reporter

NEW YORK ( -- Investors shifted away from Treasurys on Friday, after a better-than-expected report on U.S. economic growth and comments from the Federal Reserve chairman.

The yield on the benchmark 10-year note rose to 2.64% from 2.49% late Thursday. After falling to a 19-month low earlier this week, the 10-year yield ended the week just about where it started.

The yield on the 2-year note was 0.57%, up from a record low near 0.5%, while the 5-year note yielded 1.5%. The 30-year bond yielded 3.69%, up from 3.52%. Treasury prices and yields move in opposite directions.

Investors regained some appetite for riskier assets such as stocks, after government figures showing the U.S. economic growth slowed sharply in the second-quarter came in modestly better than many economists had expected.

Because the revision was not quite as severe as expected, stocks rallied as investors placed bets that the recovery was still on track, albeit a slow one.

Fed chief Ben Bernanke told central bankers at a conference in Wyoming that the recovery has lost considerable steam. But he said the central bank has the necessary policy tools to support continued growth.

Bernanke reiterated the Fed's plan to reinvest in the Treasury market. The move is part of a plan to support the economic recovery, while maintaining the current size of the Fed's balance sheet.

He said that the bank is prepared to provide additional "unconventional measures" if necessary -- "especially if the outlook were to deteriorate significantly."

Bernanke discussed other steps the Fed could take to help prevent the economy from falling back into recession, including outright Treasury purchases and offering a more specific time line for when interest rates will be increased from current rock-bottom levels.

But Bernanke stopped short of explicitly advocating these approaches, saying only that the Fed will continue to monitor developments in the economy and evaluate its options.

Paul Ashworth, senior U.S. economist at Capital Economics in Toronto, said he doesn't expect the Fed to take any significant action soon.

"If economic conditions get a lot worse, the Fed would announce a new program of Treasury bill/bond purchases and probably put more weight on explicit monetary targets," Ashworth wrote in a research note.

"Depending on the scale of the buying, that might drive a range of long-term rates lower," he added. "But the impact on the real economy would probably be pretty muted." To top of page

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