Bernanke Reminds Investors to Take Some Risks

By Michael Aneiro

Nothing terribly earth-shattering in Bernanke’s press conference. Bearded Ben batted away a couple of criticisms about Fed policy being too incremental and modest and took up the issue of what the newly renewed Operation Twist can really do at a time when interest rates, including mortgage rates, are already impossibly low.

Bernanke said he thinks the Fed can still lower interest rates more – not Treasury rates, mind you, but rates on other, riskier types of bonds. Bernanke said the Fed’s commitment to low interest rates continues to encourage investors to, say, sell a Treasury bond and buy a corporate bond instead, with the effect being to lower corporate bond rates and corporate spreads. “It’s not just the effect on the long-term interest rates but… a broader ease in financial conditions,” he said.

He also got a little Hippocratic at one point, saying it’s a continued goal of the Fed “to do no harm to the recovery,” and added that the Fed was unlikely to do more maturity extension beyond what was announced today “because we’ve taken that about as far as we can.”

While he was speaking, markets did another U-turn, with stocks back in the red and Treasury yields on their second downward leg of the day. 10-year note prices are now 3/32 lower than where they started the day, with yields at 1.630%, while 30-year bonds are up 10/32 to yield 2.712%, per Tradeweb data.

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