(Updates with comments from Fed Chair Yellen, analysts, fresh
By Daniel Bases
NEW YORK, July 15 The bond market traded in a
narrow range on Tuesday, absorbing Federal Reserve Chair Janet
Yellen's message that the U.S. economic recovery remains
incomplete and early signs of a pick-up in inflation are not
enough to accelerate anticipated interest rate increases.
Yellen's testimony before the Senate Banking Committee
generated little market movement, with prices gyrating a few
points above and below the day's opening level, reflecting
market views that the loose monetary policy stance was not about
Despite strong recent jobs reports and other signs of
continuing recovery, Yellen emphasized she won't conclude the
economy has recovered until wages start rising and discouraged
workers return to the labor force.
"One small nuance change was her recognizing the labor
market performance was better than expected. It is not a hawkish
shift in tone, but it is a recognition that the labor market
data had been better than they anticipated at the June meeting,"
said Michael Pond, global head of inflation market strategy at
Barclays in New York.
"We think over time the labor market data will continue to
improve and wages will pick up, leading to the Fed tightening
cycle and market rates rising with that. But until we get the
Fed acknowledging a pick-up in wages, the market will just take
its time adjusting rates higher," said Pond.
Ahead of Yellen's testimony, which will continue for a
second day on Wednesday before the House Financial Services
Committee as part of a semiannual monetary policy report, data
showed a smaller-than-expected rise in June U.S. retail sales.
June's data included a surprising decline in receipts at
automobile dealerships, but not enough to knock the perception
the economy is in recovery mode.
Retail sales rose 0.2 percent in June after an upwardly
revised 0.5 percent advance in May, the Commerce Department
reported. Economists polled by Reuters had forecast retail
sales, which account for a third of consumer spending, to
advance 0.6 percent..
"The people that were poised for retail sales to shake
things loose got an OK report, and certainly the upward
revisions were supportive of higher five-year yields," said Jim
Vogel, interest rate strategist at FTN Financial in Memphis,
The benchmark 10-year U.S. Treasury note yield
held unchanged at 2.55 percent while the 30-year bond
was up 6/32 in price, pushing the yield down to 3.36
Yellen did send a shock wave through portions of the equity
markets. She cited unease about some aspects of the U.S.
securities markets, taking the unusual step of singling out
biotechnology and social media stocks for their "stretched"
(Reporting by Daniel Bases; Editing by James Dalgleish)