US Treasury debt prices rose on Tuesday after Ben Bernanke, the nominee to succeed Alan Greenspan as chairman of the Federal Reserve, emphasised the importance of continuity at the central bank.
Some in the bond market had worried that Bernanke's history as an academic economist interested in inflation targeting might make him less predictable and a less effective inflation fighter than Greenspan, the current Fed chairman.
"He's not saying anything that would suggest that we're going off on a different tangent. In that regard there's a little bit of relief buying going on," said Kevin Flanagan, a fixed income strategist at Morgan Stanley in White Plains, New York.
Earlier prices were a bit higher after soft core producer price inflation data slightly offset stronger-than-expected retail sales data. But the data largely cancelled each other out, making the effect of Bernanke's comments more striking.
Traders also said that the strength of the Bernanke-related move also reflected an adjustment to Monday's sharp sell-off, which many considered a bit overdone.
Benchmark 10-year Treasury notes, were up 14/32 for a yield of 4.55 percent, compared with 4.61 percent on Monday. Two-year notes rose 2/32 to yield 4.47 percent after ending the day on Monday at 4.50 percent.
Tuesday's move helped compress the closely watched spread between two- and 10-year notes to 9 basis points, its lowest level in nearly five years. Inversions, wherein two-year notes yield more than 10-year notes, are historically associated with a slowing of economic activity.
Five-year notes rose 6/32 to yield 4.50 percent after ending the day on Monday at 4.55 percent. The 30-year bond ticked up 29/32 for a yield of 4.74 percent versus 4.80 percent on Monday.
"The core PPI was very shocking at negative 0.3. That helped the bond market," said one trader at a primary Treasuries dealer on Wall Street.