Bonds Stumble Amid Concerns Rates Will Rise
Stocks pulled back and Treasury bonds plummeted after Alan Greenspan sparked fears of an interest-rate increase with an unexpectedly upbeat speech.</br></br>The stock decline was mild, with the Dow Jones Industrial Average falling 0.46%, or 48.92 points, to 10525.37. The pullback probably had more to do with profit-taking after a big run-up than with anything the Federal Reserve chairman said to the Senate Banking Committee.</br></br>But bonds fell sharply, sending the yield on the 10-year Treasury note to a level it hasn't seen for eight months. The reaction appeared to be a direct result of Mr. Greenspan rewriting the speech he had delivered last week to the House Financial Services Committee.</br></br>Last week, Mr. Greenspan said simply that the recession seemed to be bottoming out. Yesterday, he made several revisions, saying that "an economic expansion is already well under way." Some bond investors took that as a signal that the Fed could move to control the economic expansion by raising its target interest rates as soon as the second half of the year.</br></br>"The fact that his first speech was so dovish and his second speech changed over the course of just a few days really took the market by surprise," said Scott Gewirtz, head of U.S. Treasury trading at Deutsche Banc Alex. Brown. Mr. Gewirtz said futures prices now suggest "that the Fed is going to raise interest rates about two percentage points over the next year."