NEW YORK (CNNfn) - Treasury bonds ended sharply higher Tuesday, with yields at their lowest level since May as a plunge in the U.S. equities markets prompted investors to seek the relative safety of government securities.
"It was a classic day in which bonds rallied from flight to quality from stock weakness," said Mike McGlone, analyst at IBJ Lanston Futures.
Shortly before 3 p.m. ET, the 30-year Treasury bond rose 20/32 of a point to 106-26/32. Its yield, which moves inversely to its price, fell to 5.77 percent from 5.83 percent Monday. Ten-year Treasury notes gained nearly 19/32 to 104-17/32, their yield retreating to 5.89 percent from 5.99 percent Monday.
The market opened slightly lower on expectations of a strong equities open. But in early afternoon trade, all three major U.S. stock indexes plummeted, igniting a massive flight to quality in Treasurys. When stocks recovered from their worse levels, Treasury prices stabilized.
Tuesday's gains mark the second consecutive session in which movements in the stock markets have greatly impacted Treasurys. In late trade, the Nasdaq composite index fell 1.5 percent, extending Monday's sharp loss in which it plunged over 7 percent, its biggest one-day point loss on record.
Analysts said the equity slide has alleviated fears of aggressive tightening by the Federal Reserve. Charles Reinhard, chief market strategist at ABN Amro, said although the market still expects the Fed to raise rates in May, the equity turmoil removed any chance of a half-point rate hike.
The central bank has boosted interest rates five times in a "gradualist" approach since June in an effort to slow the nation's surging demand and contain inflation. However, there are few signs of a slowdown, and investors had feared the Fed would take more aggressive action.
Earlier reports that the Federal Reserve purchased Treasurys on behalf of the Bank of Japan (BOJ) also helped Treasurys. The BOJ intervened in the currency markets Monday, buying as much as $10 billion in yen for dollars, in order to curb the yen's recent strength.
The latest economic news had no apparent market effect. U.S. leading indicators, which forecast economic activity six to nine months ahead, fell 0.3 percent in February, according to the Conference Board.
Dollar drops vs. euro
The dollar fell sharply against the euro and other European currencies Tuesday, losing ground as a result of the equity sell-off.
"The dollar was reluctant to follow movements in the equity market, but when the selling became fierce, it started to respond," said Tom Benfer, global currency analyst at Bank of Montreal.
Shortly before 3 p.m. ET, the euro traded at 96.42 cents, up from 95.40 cents Monday, a 1 percent loss in the dollar's value. The single currency reached an intraday high of 97.57.
Meanwhile, the dollar was little changed against the yen, changing hands at 104.95 yen, up from 104.87 yen Monday. 
|
