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Bond prices fall on Bernanke's remarks

February 15, 2008 | "CNNMoney"

Federal reserve chairman warns of slow economic growth, signals more interest rate cuts.

Bond prices fell Thursday after Federal Reserve Chairman Ben Bernanke said the U.S. economy will continue to struggle and suggested that the central bank is willing to cut interest rates further.

Bernanke told the Senate Banking Committee that economic conditions have worsened recently and that growth is likely to remain sluggish. But the Fed chief said conditions could improve in the second half of the year.

He also said that softness in the housing market and employment will have negative repercussions on consumer spending.

Bernanke's remarks caused a selloff in the stock market with the Dow Jones industrial average falling 150 points with less than one hour left in the session.
Bond traders see Bernanke's remarks as confirmation that the central bank will continue its rate cutting campaign, a move that could increase inflation, which is bad for bond investors.

Moreover, lower interest rates should stimulate economic activity, which makes equity investments more appealing than Treasurys.

The benchmark 10-year Treasury note fell 1 to 97 3/32 with a yield of 3.85%, up from 3.68% late Wednesday. Prices and yields move in opposite directions.

The 30-year long bond was down 2 7/32 to 95 5/32 with a yield of 4.67%, up from 4.49%.

The 2-year note slipped 1/32 at 110 12/32 with a yield of 1.91%, down from 1.92%.

The dollar was mixed against other major currencies.

Light, sweet crude oil rose $1.80 to $95.07 per barrel on the New York Mercantile Exchange.


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