Treasurys slip as financial stocks rally
Weak dollar, mixed financial reports push government bonds lower.
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| An uptick in financial stocks pushed bond prices lower Thursday. |
NEW YORK (CNNMoney.com) -- Treasury prices continued to fall for a second straight session Thursday, led lower by an equity rally, a weak dollar and mixed economic reports.
The benchmark 10-year note fell 28/32 to 98 20/32 and yielded 4.04%, up from 3.93%, at closing Thursday. Bond prices and yields move in opposite directions.
The 2-year note declined 9/32 to 100 18/32 and yielded 2.56%, up from 2.43%. The 30-year long bond slid 28/32 to 98 20/32; its yield rose to 4.65% from 4.58%.
Stock rally: Better-than-expected financial reports from JPMorgan Chase (JPM, Fortune 500), Coca-Cola Co. (KO, Fortune 500) and United Technologies Corp. (UTX, Fortune 500), along with new SEC rules on short selling led to a rally in stock prices and a subsequent decline in Treasurys.
Bonds are seen as a safe haven in times of economic uncertainty and investors often shift assets depending on where sentiment lies.
"The bond market is just tracking the stock market, which is doing better on short-covering of the financial stocks and weaker oil prices," said Michael Cheah, a bond fund manager at AIG SunAmerica.
But the shift may be a blip. "If this is the turning point, and the stock market is sound, then bonds will start to sell off," he said. "But there have been a lot of losses in the financial stocks, and I just don't see that happening right now."
Soft dollar: The 15-nation euro bought $1.5876 in afternoon European trading, up from $1.5810 late Wednesday in New York.
A continued weakness in the greenback and increased inflation concerns have added to the downward pressure on bonds, said Peter Cardillo, chief market economist with Avalon Partners.
"Yields are probably headed higher," he said. "Investors are going to demand more of a return [and] the market is going to have to adjust to that."
Mixed economic reports: A Commerce Department report released Thursday found that construction of homes and apartments rose in June by 9.1% - but most of the gain resulted from a change in New York laws that gave a boost to apartment building.
Also on Thursday, the U.S. Labor Department reported that the number of newly laid-off people signing up for jobless benefits rose by 18,000 last week to 366,000 - below the number that economists had expected.
Bond prices already reflect continued weakness in real estate and employment, said Matthew Smith, president and chief investment officer of Smith Affiliated Capital. He said investors are more worried about whether there will be another big shoe to drop in the banking sector.
"Everybody knows that unemployment is going higher and real estate is going down," Smith said. "We don't know if there's another bank that's going to go belly up. Was IndyMac the tip of the iceberg, or was it isolated?" 
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