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Bonds Continue To Tail Off

The market hasn't reacted sharply to Greenspan's speech on the changing role of monetary policy.

Treasuries were lower this morning, continuing to pull back from the strong two-day rally earlier this week that pushed the 30-year bond to its lowest yield in three months.

The market hasn't reacted sharply to



Alan Greenspan's

speech on the changing role of monetary policy this morning. His comments, to some degree, clarify the role of rising asset prices in interest-rate policy, but it's also a typically opaque Greenspan speech, and the chairman doesn't really give the market a good indication of how much a role he believes stocks play in setting interest policy.

Of late, the 30-year Treasury bond was down 18/32 to 102 22/32. The yield rose 5 basis points to 5.94%.

Greenspan, in his prepared

remarks before a

Kansas City Fed

symposium in Jackson Hole, Wyo., said: "Our analytic tools are going to have to increasingly focus on changes in asset values and resulting balance sheet variations if we are to understand these important economic forces."

Now, sometimes the bond market parses every word Greenspan says, attempting to figure out whether he's going to change interest rates. Other times, it seems to be waiting for him to say, "and yes, we'll be hiking rates in approximately 12 minutes." This is one of the latter instances, but perhaps it's justified.

"Maybe part of the problem is he gave us half of something," said Jim Bianco, president of

Bianco Research

. "He said the stock market matters, and it's difficult to value the market. But we always knew it matters. But 'what do you think, Mr. Greenspan' -- he didn't answer that question."

Greenspan, in several recent speeches, including his


testimony in July, has jawboned the markets by referring to an "asset bubble" and the potential consequences of what happens when inflated financial markets finally deflate. But he previously hadn't simply explained what role asset prices have in shaping monetary policy. The chairman links rising asset prices to decisions people make in consumer spending, but also states that the "extraction of equity from housing" plays perhaps an even more important role. He adds that "stock market values and capital gains on homes are correlated and, hence, their separate effects are difficult to identify."

The speech hasn't changed the market's view about what's to happen at upcoming Fed meetings, according to sources.