Updated from 10:45 a.m. EST
Treasuries marked time Monday as the market debated whether new
chairman Ben Bernanke's first public speech would be more of the same or signal a new direction in monetary policy.
"In terms of Bernanke, the market is trying to grapple with how close the Federal Reserve is to ending its tightening," says Michael Cheah, portfolio manager at AIG SunAmerica Asset Management. "It is important for the Fed to show that they will not overdo it, because the risk of going wrong is now very serious."
The uncertainty swirling around the new Fed chief is apparent in the shape of the Treasury yield curve, where shorter-dated maturities have been yielding more than longer-dated maturities for more than a week. This is the opposite of how yields usually behave, and the inverted curve has historically preceded an economic slowdown or recession.
The benchmark 10-year note edged higher 2/32 of a point to yield 4.58%, while the 30-year bond dropped 2/32 to also yield 4.58%. Bond prices and yields move in opposite directions.
The five-year note was up 2/32 to yield 4.57% and the two-year added one tick to yield 4.67%.
Newly minted Fed chief Bernanke will deliver his semi-annual policy report to Congress Wednesday, offering his first public comments since taking the reins from Alan Greenspan.
The market will also take note of other Fed officials speaking this week, looking for opinions on rate increases and inflation. This includes a speech today from Cleveland Fed President Sandra Pianalto, as well as comments from Richmond Fed President Jeffrey Lacker due later in the week. Both presidents are voting members of the policy-setting Federal Open Market Committee.
The market will have little economic data to lean on leading up to Bernanke's testimony, but it will get a glimpse of retail sales data for January and a report on business inventories from way back in December.
Housing will also be in focus later this week as reports on mortgage applications and housing starts are released.
"We are cognizant that a complete collapse of the market is not likely or required to have a material impact on consumer spending, so we look cautiously on signs of moderation in a market which has come to represent so much of consumers' wealth and spending power," says David Ader, bond strategist with RBS Greenwich Capital.
While Bernanke's comments are expected to have hawkish elements, the Fed has raised rates 14 times and in its own words the central bank has said that policy is no longer accommodative.
"Bernanke must remember that he has a dual mandate," says Cheah. "His job is not just to subdue inflation at all costs, but to keep the economy growing."