NEW YORK -- Remarks by Alan Greenspan, the Federal Reserve's chairman, sent a chill through the credit markets yesterday, where prices of Treasury securities fell and interest rates rose.
While attending an international monetary conference in Japan, Greenspan told reporters that the economy seemed to be bottoming out in the second quarter, and that as a result of rapid inventory liquidation, a stronger-than-expected recovery was increasingly likely.
Greenspan also said recent reports suggested that inflation in the United States would be at a lower level coming out of the recession than when it began. For the most part, however, those comments were lost on the bond market.
"Greenspan didn't say anything radical," said Joseph Liro, a senior vice president and money market economist at S.G. Warburg & Co. "It shouldn't be much news that the recession is coming to an end. But the market sure took it badly."
Some analysts and traders said Greenspan's remarks on the employment rate eliminated virtually any
possibility that the Fed might ease its monetary policy again any time soon.
Greenspan said that while the unemployment rate might show a further rise, turns in the labor markets would lag developments in the overall economy.
"I don't see how the employment number can help us now," a government bond trader said.
Greenspan made his remarks in the context of recent statistics that suggest the economy may have troughed. But some analysts said they remained unconvinced.
"The improvement that has been made is from such low levels that it is hard to label it a recovery," said Alan Leslie, chief economist at Discount Corp. "To my mind, that does not make a recovery until we see it for a longer period of time."
Greenspan's remarks had little effect on bond prices in Tokyo. The slide began when trading shifted to London and became more pronounced once American dealers reached their desks.
In the secondary market for Treasury securities, the 8 1/8 percent 30-year bonds of 2021 were offered in late trading at a price of 97 5/32, down more than half a point, to yield 8.38 percent, up from 8.33 percent late Tuesday.
Among notes, the 8 percent 10-year notes were offered at 98 26/32, down 3/8 of a point, to yield 8.17 percent. The 7 5/8 percent five-year notes were offered at 99 5/32, down 1/4 of a point, to yield 7.83 percent. And the 6 3/4 percent two-year notes were offered at 99 29/32, down 2/32, to yield 6.80 percent.
Short-term Treasury bill rates rose modestly. By late in the day, three-month bills were offered at a discount rate of 5.60 percent, up four basis points, or hundredths of a percentage point. Six-month bill rates rose by one basis point, to a late offered rate of 5.70 percent.