Bond Investors Fear That Federal Reserve Moves To Lift Economy Hurt Treasurys in Long Term
NEW YORK -- The prospect that the Federal Reserve could avert a recession through its aggressive easing of monetary policy is tolling a bearish knell for Treasurys.</br></br>Last week, the Fed unexpectedly cut interest rates by a half percentage point, its fourth rate reduction of that size this year. That pushed the Federal funds rate, or overnight bank lending level, down to 4.5%.</br></br>Bond investors always fear that returns on fixed-income securities such as Treasurys could be eroded in the long term if stronger growth is accompanied by higher inflation. Thus, in their view, what's good for the economy isn't necessarily healthy for the Treasurys market.</br></br>Reflecting such fears, the 30-year Treasury bond Friday ended at about its highest yield of the year so far, or 5.793%. Its price, which moves inversely to its yield, was down 3/32 point from late Thursday at 94 1/32.</br></br>Meantime, the benchmark 10-year Treasury note was down 2/32 point, or 62 cents per $1,000 face value, at 97 26/32. Because of the small change in price, its yield ended unchanged from Thursday at 5.279%.