ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)


Treasury bonds pulled back Friday following the latest comments on the labor market from Federal Reserve Chairwoman Janet Yellen. In a keynote speech at the annual central banking symposium at Jackson Hole, Wyo., Ms. Yellen pointed to an improving U.S. job market, but was non-committal about how this progress would affect monetary policy.

“Yellen disappointed the bond market,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading in New York at Deutsche Bank AG’s private wealth management unit.

Mr. Pollack said that “People had expected her to counter” the minutes of the Fed’s July monetary policy meeting released earlier this week that has been slightly hawkish on interest rates. “She didn’t do that today,” and bond investors booked profit from a price rally the prior day, he said.

In recent trading, the benchmark 10-year note was 9/32 lower, yielding 2.421%, according to Tradeweb.

Bond yields rise as prices fall.

The yield remains near a 14-month low and has fallen from 3% at the start of the year.

The two-year note was 1/32 lower, yielding 0.496%. The five-year note was 6/32 lower, yielding 1.665%.

Ms. Yellen said if the job market continues to improve more rapidly than expected or inflation rises quickly to the Fed’s 2% goal, the Fed could raise rates sooner than expected. If progress stalls, low rates will persist, she said.

Jason Evans, co-founder of hedge fund NineAlpha Capital LP in New York, said Ms. Yellen’s speech was “balanced” and he didn’t see it as a game changer to bring forward the timing for the first interest rate increase.

“The Fed is still likely to move sometime in the middle of next year but they keep open the ‘if the data changes’ option,” he said.

The odds of a rate increase at the Fed’s June 2015 meeting were 46% Friday, compared to 44% a day earlier, according to data from CME based on prices of the 30-day fed-funds futures, the main derivative instrument for traders and investors to bet on the Fed’s official interest rate outlook.

The odds were 55% a month ago.

The bond market has suffered a bout of volatility this week as investors keep a close eye on clues about when the Fed is going to start raising short-term interest rates from near zero.

Bond prices fell Wednesday as the minutes of the Fed’s July policy meeting suggested debate was heating up among officials on the timing for raising interest rates amid signs that the economy is gaining traction from the winter doldrums.