By Jonnelle Marte
Federal Reserve chairman Ben Bernanke surprised few when he stopped short of announcing groundbreaking monetary policy at his Jackson Hole address this morning. By reiterating the gloomy state of the economy and expressing optimism about the outlook, Bernanke sent a message that bond investors should expect more of the same—for now.
Bernanke said the Federal Reserve would consider further quantitative easing and other options at their next meeting, which starts Sept. 20. That means there’s almost another month before Treasury investors could see a shift. “It’s just a wait and see mode,” says Wilmer Stith, portfolio manager of the $113 million MTB Intermediate-Term Bond fund (GVITX). (Last year, long term Treasury rates took off after Bernanke announced QE2, sparking investor concerns about inflation.)
Bernanke also stressed that it’s going to take more than action from the Fed to rev up the economy. The Fed has already said it plans to keep short-term rates low for at least another two years, an encouraging sign for today’s short-term Treasury investors, who are currently holding bonds with very low yields.
Without further stimulus, investors will likely need to see more positive economic signs before they feel comfortable stepping away from Treasurys and into riskier investments like equities or high-yield bonds, analysts say. Stith has increased his Treasury holdings to about 20% from about 5% at the end of last year; he also decreased his high-yield exposure to about 5% from 15% in April.