Bernanke and Bonds Bothersome to Bulls

Same venue, different speech, similar result.

Federal Reserve Chairman Ben Bernanke spoke Tuesday morning at the 2007 International Monetary Conference from Cape Town, South Africa. Like last year, when he spoke at the same conference in Washington, D.C., and sent the Dow Jones Industrial Average tumbling 199 points, his comments seemed to spark a stock market selloff Tuesday.

But this time around, the selloff was milder and a mere coincidence that Bernanke was involved at all.

"This is about bonds ticking back up to 5% levels," says Bill Nichols, trader at Bear Stearns. Rising yields ignite chatter about the level at which Treasuries become attractive relative to stocks, from a risk-reward perspective, he says.

After trading as low as 13,551 intraday, the Dow closed down 0.6% to 13,595.46. The S&P 500 finished down 0.5% at 1530.95 vs. its nadir of 1525.60; the Nasdaq Composite slipped 0.3% to close at 2611.23.

Among the biggest losers Tuesday were rate-sensitive names in the utility sector like Exelon (EXC), and REITs like Apartment Investment & Management (AIV). The Dow Utility Index fell 1.5% and the Dow REIT Index lost 1.8%.

In the bond pits, the yield on the 10-year Treasury bond continued to rise as strong economic news removes most estimates for a rate cut. The Institute for Supply Management's read on the service sector at 59.7 was more robust than analysts had expected as its jobs component, new orders, and prices paid elements rose. The 10-year closed the day yielding 4.97%, compared with 4.93% at Monday's close.