Bond Yields Fall After Comments by Fed Official

Investors poured into Treasury securities Wednesday, extending the rally of recent weeks, after comments by a Federal Reserve bank president hinted that the Fed might be nearing the end of its credit-tightening campaign.

The benchmark 10-year Treasury note yield slid below 4% for the first time since October.

But falling bond yields couldn’t help the stock market, which stumbled in part on fresh concerns about corporate earnings growth.

The Dow Jones industrial average sank 60.52 points, or 0.6%, to 10,664.11.

Technology stocks led the retreat after Cisco System’s near-term growth forecast disappointed some investors. The tech-heavy Nasdaq composite index tumbled 34.13 points, or 1.6%, to 2,052.55, the biggest one-day loss since Jan. 4.

In the bond market, buyers stormed in after Atlanta Fed President Jack Guynn signaled that the central bank might soon change the language in its official post-meeting statement, which for months has referred to expectations for a “measured” pace of short-term rate increases.

The Fed has lifted its key rate six times since June, to the current 2.5%.

“If we stay on the path we’re on and withdraw some of the accommodation we’ve had in place ... we’ll be at a point it’s not quite as clear how much more we need to do and how quickly we need to do it,” Guynn said in an interview published on the Wall Street Journal’s website.

A change in the Fed’s statement language will come sooner or later, “and maybe sooner,” Guynn said.

As investors snapped up bonds, the yield on the 10-year T-note fell to 3.98%, down from 4.02% on Tuesday and the lowest since Oct. 25.

Yields declined across the board in the Treasury market. The two-year T-note ended at 3.23%, down from 3.31% on Tuesday.

The rally also helped the Treasury sell $15 billion of new five-year notes Wednesday. The notes were sold at a yield of 3.62%. Indirect bidders, which include foreign central banks, bought 45.4% of the securities, up from 39.8% at the last auction in January.

“It was a very good auction,” said Glen Capelo, a Treasury trader at RBS Greenwich Capital Markets in Greenwich, Conn.

The Treasury comes to market again today, with an offering of $14 billion in 10-year notes.

Long-term bonds have been in increasing demand worldwide in recent months, in part because some pension funds are locking in fixed bond yields to better match their assets with expected future payments to retirees, analysts say.

Short-term speculators also have powered the bond rally, traders say.

In the stock market, by contrast, buyers were in relatively short supply Wednesday.

Computer networking giant Cisco late Tuesday reported higher quarterly earnings but gave a near-term sales growth forecast that was shy of analysts’ estimates.

Cisco shares fell 61 cents to $17.63. The stock hit a 52-week low of $17.51 on Jan. 25.

Cisco’s outlook “affects a lot of companies in technology,” Patrick Becker Jr., who helps manage $2.2 billion at Becker Capital Management in Portland, Ore., told Bloomberg News.

Falling stocks outnumbered winners by 3 to 1 on Nasdaq. Tech shares losing ground included IBM, down $1.43 to $92.70; Broadcom, down $1.20 to $31.67; and Ixia, down 96 cents to $17.13.

Also, El Segundo-based Computer Sciences sank $2.52 to $49.48. The No. 3 U.S. computer services company late Tuesday reported quarterly revenue from continuing operations of $3.52 billion. The number was below analysts’ forecasts.

The tech sector failed to get a lift from Hewlett-Packard, which gained $1.39 to $21.53 after the company’s board ousted Chief Executive Carly Fiorina.

On the New York Stock Exchange, losers topped winners by about 2 to 1. Selling was heavy in steel, airline and communications equipment issues.

Molson Coors dropped $2.28 to $73.50 on its first day of trading after Canadian brewer Molson bought U.S. rival Coors. The stock’s ticker symbol: TAP.

On the plus side, some insurance stocks rallied. American International Group climbed $1.58 to $69.31 after the world’s largest insurer said fourth-quarter earnings beat Wall Street estimates. Another insurer, Aon, rose $1.97 to $24.52 on its earnings report.

Among smaller companies, La Canada Flintridge-based Sport Chalet surged $1.22 to $14.80 after it reported a 23% jump in quarterly earnings.