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Bonds take a dip
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November 28, 2001: 3:35 p.m. ET
November selloff resumes after demand for 2-year notes proves weak.
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NEW YORK (CNN/Money) - U.S. Treasuries edged lower Wednesday, giving up earlier gains as investors faced with tepid demand for the government's note auction continued the bond market selloff that began earlier this month.
The Treasury Department's $21 billion auction of new two-year notes met with only modest interest, with the ratio of bids received to those accepted coming in at the low end of expectations.
The bond market's latest losses came despite a sinking stock market, which often sends investors scrambling for safe-haven government paper.
The latest news on troubled energy trader Enron didn't help bonds either. Dynegy walked away from a takeover of Enron, whose shares have tumbled as much as 98 percent this year, a final blow to one of the stock market's highest flyers of 2000.
Standard & Poor's cut Enron's debt rating to "junk status."
In its periodic assessment of the economy, the Federal Reserve said the economy remained weak in October, outweighing any signs of recovery, and inflation was contained.
At 3 p.m. ET, benchmark 10-year notes fell 6/32 to 100-11/32, sending the yield, which moves inversely to its price, up to 4.95 percent. Thirty-year bonds lost 7/32 to 100-11/32, yielding 5.34 percent.
Five-year notes shed 2/32 at 96-14/32, yielding 4.30 percent.
The losses counter an advance on Tuesday when two Fed officials left the door open for more interest rate cuts. In separate appearances, Fed Governor Laurence Meyer and Chicago Fed President Michael Moskow both signaled that borrowing costs could go lower if the economy appeared to need more stimulus. Central bankers have cut interest rates 10 times this year.
Still bonds have fallen in November as investors bet that an economic recovery next year will bring an end to lower interest rates, which move inversely to bond prices.
Meyer's remarks on Tuesday prompted a reassessment of that view among investors.
"We're back to expecting a rate cut on December 11," said Chris Rupkey, vice president and senior financial economist at Bank of Tokyo/Mitsubishi. "Meyer changed people's thinking by essentially saying there's no limit as to how low (the federal funds rate) could go and today we're getting an added boost from the (weak) stock trade."
Anthony Karydakis, senior financial economist at Banc One Capital Markets, agreed.
"People had come to the conclusion that the economy was bottoming and that a robust recovery would soon be on the way," Karydakis told Reuters "Meyer's remarks served as a reminder of how far out of touch the market had been."
In the currency market, the dollar weakened against the euro and yen. The dollar bought 123.16 yen from 123.88 yen while the euro rose to 88.68 cents from 88.34 cents Tuesday.
-- From staff and wire reports 
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