Bonds rally on Fannie, Freddie turmoil
Treasurys strengthen Monday as jittery investors look for a safe haven for their assets after the Fed announced a plan to shore up the mortgage giants on Sunday.
NEW YORK (CNNMoney.com) -- Treasury prices jumped on Monday after the government stepped in with a support plan for government-backed mortgage giants Freddie Mac and Fannie Mae over the weekend.
The benchmark 10-year note rose 18/32 to 99 29/32 and yielded 3.88%, down from 3.95% late Friday. Bond prices and yields move in opposite directions.
The 30-year long bond rose 1 2/32 to 98 14/32. Its yield fell to 4.47% from 4.53%. The 2-year note gained 6/32 to 100 23/32, and its yield slid to 2.48% from 2.59% late Friday.
"The story is an ongoing 'flight to quality' at this time," said Avalon Partners chief economist Peter Cardillo. Investors tend to put their assets in the safety of government bonds when they are nervous about volatility in other markets.
Treasury Secretary Henry Paulson announced on Sunday that the Bush administration will ask Congress to pass legislation that would temporarily allow battered Freddie Mac and Fannie Mae to have access to more capital from the government Treasury.
The Federal Reserve Bank of New York was also granted authority to lend to Fannie and Freddie if the two firm's need it.
While the government's bid to help "calms somewhat the fears that are out there," said Cardillo, it is also a "double-edged sword" for investors. That's because the Fed's actions are "sort of an admission of guilt," he said. It's the government saying, "hey, there are serious problems and we have to step in here," he added.
Freddie auction. Traders shrugged off Freddie Mac's oversubscribed $3 billion corporate debt sale Monday morning. "The auction went well," said Michael Cheah, senior portfolio manager at AIG SunAmerica. "We should have seen the treasury market selling off" and bond prices falling, he said.
Weakness in the financial sector and "broader stock market misery" is overshadowing the strong Freddie auction, said Cheah. When the stock market shows signs of weakness, investors tend to shift assets and seek safety in government bonds, which are often perceived as weathering bad economic times better than other markets.
Government bonds plummeted on Friday, as skyrocketing oil prices renewed investors' inflation fears. 
