Treasurys Strengthen as Fed's Yellen Addresses Regulations, Not Interest Rates

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bond prices rose Friday as Federal Reserve Chairwoman Janet Yellen steered clear of monetary policy in a speech at the Fed's annual Jackson Hole conference.

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The yield on the benchmark 10-year Treasury note was recently 2.175%, according to Tradeweb, compared with 2.194% Thursday. Yields fall when bond prices rise.

Ms. Yellen's speech had been billed as an address on financial stability, and she stuck to the topic of regulations in prepared remarks, arguing that postcrisis rules had made the financial system stronger.

She didn't argue, as Federal Reserve Bank of New York President William Dudley recently has, that relatively easy financial conditions have created a rationale for the Fed to further lift short-term interest rates.

Ms. Yellen "didn't use the speech to justify future hikes," said Priya Misra, head of global rates strategy at TD Securities in New York. "To the extent that some people in the market expected that, they must have been disappointed."

Ms. Yellen's address was the first major speech at the Jackson Hole symposium, which is hosted by the Federal Reserve Bank of Kansas City. European Central Bank President Mario Draghi will also deliver an address in the afternoon.

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Yields on longer-term Treasury bonds have been remarkably steady in recent months, with the yield on the 10-year note, as of Thursday, holding to its narrowest 90-day range since 1972, according to WSJ Market Data Group.

Investors have lowered their expectations for a third interest-rate increase this year as inflation has slumped below the Fed's 2% annual target. Investors do expect the Fed to start reducing its large portfolio of Treasurys and mortgage-backed securities in the fall, as the central bank tries to position its balance sheet closer to where it was before the financial crisis. But many think the process will be slow enough that it will have little impact on the market.

Before Ms. Yellen's speech, Treasurys had barely budged following a mixed report from the Commerce Department on demand for long-lasting factory goods.

Overall orders for durable goods fell by the most in nearly three years in July, but the decline was due entirely to volatility in aircraft demand. Outside of transportation, orders rose for the third straight month.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

August 25, 2017 11:29 ET (15:29 GMT)