Treasury yields bounce off lows as stocks rise

NEW YORK — Treasury yields recovered modestly from historical lows Friday as investors sold government debt and swarmed back into stocks despite a report showing that half a million people lost their jobs last month.

The data was worse than economists predicted, and added to evidence that the United States is facing down a deep recession. When the economic outlook is poor, investors usually flock to Treasurys, considered the safest assets available.

But the bond market has already been bracing for bad news. Over the past week, Treasury yields have plunged to their lowest levels since the government started issuing them, and the lowest yield levels for equivalent assets since the 1940s and 1950s, according to analysts.

Analysts are not anticipating a significant rebound in Treasury yields, which had tumbled precipitously over the past week on forecasts of a deep recession, and the Federal Reserve's decision to buy mortgage-backed securities. As the Fed buys mortgage-backed securities, the original holders of those securities are apt to buy Treasurys of similar maturities to take their place in their portfolios.

However, investors' decision to sell Treasurys and return to stocks Friday in the face of horrific economic data signaled to many analysts that yields may be bottoming out. Low yields are good for borrowers whose mortgages and other loans are tied to Treasurys, but bad for people invested in funds that hold Treasurys.

"We've priced in the bad news," said David Ader, government bond strategist at RBS Greenwich Capital. And with massive Treasury auctions scheduled in the coming weeks, "it suggests to me that the supply concerns are going to press yields higher."

When the Treasury Department sells debt, the rise in supply tends to dampen prices and lift yields.

On Friday, as the Dow Jones industrial average rose more than 270 points, the two-year Treasury note fell 8/32 to 100 19/32, and its yield rose to 0.94 percent from 0.82 percent late Thursday.

The benchmark 10-year note fell 1 9/32 to 109 3/32, and its yield rose to 2.70 percent from 2.56 percent. The 30-year bond fell 2 2/32 to 126 3/32 and its yield rose to 3.14 percent from 3.07 percent.

The jobs report was "stunningly bad," said Kim Rupert, managing director of global fixed income analysis at Action Economics. However, "most of the people in the market had already anticipated a pretty grim report. They already set their positions accordingly during the week."

The Labor Department data arrived on the heels of other gloomy economic readings this week, including a drop in factory orders and contractions in the manufacturing and services sectors.

"The information was really as bad as it could be this week," said John Spinello, bond strategist at Jefferies & Co.

Short-duration Treasurys, or Treasury bills, are still seeing yields hover just above zero, showing how willing investors are to earn virtually nothing as long as the principal remains safe. The three-month T-bill's yield was at 0.02 percent on Friday, up slightly from just below 0.01 percent on Thursday. The discount rate was 0.01 percent.

Some Treasury money market funds, including those run by Evergreen Investments and Allegiant Asset Management Co., are closed to new investors in order to preserve the funds' yields. When new investors come in, the funds have to buy more Treasurys.

And because yields on Treasury bills have been so low, investors have not been as encouraged as they might normally be by a decline in lending rates among banks. These lending rates may be falling, but they still indicate that banks view other financial institutions as risky.

The London interbank offered rate, or Libor, on three-month loans in dollars inched down by over 0.01 percentage point to 2.19 percent, according to the British Bankers' Association. That's still well over 2 percentage points above the three-month T-bill yield; normally, the difference is less than 0.5 percentage point.

(This version CORRECTS the story to note the price for the 30-year bond fell, not rose.)

Back To Top

	US interbank lending rates drop for third day	Associated Press	Mon Dec 1	0
	Mortgage rates drop to lowest level since January	Associated Press	Thu Dec 4	1
	Stocks end short session with 5th straight gain	Associated Press	Mon Nov 24	44
	Financial industry pushes for lower mortgage rates	Associated Press	Wed Dec 3	1
	Wall Street opens sharply higher	Associated Press	Mon Dec 1	0