Bonds narrowly lower as stocks recover
Treasurys are mixed as lower oil prices overcome concerns about trouble at Lehman Brothers, Washington Mutual and other banks.
NEW YORK (CNNMoney.com) -- Treasury prices gave up earlier gains Thursday as the stock market clawed its way back into positive territory, and lower oil prices overcame worries about the financial sector.
The benchmark 10-year note fell 1/32 to 103, with its yield hovering around 3.63%.
The 30-year bond rose 5/32 to 104 24/32, with its yield falling to 4.21% from 4.22% late Wednesday. Bond prices and yields move in opposite directions.
Meanwhile, the 2-year note traded down 1/32 to 100 9/32. Its yield rose to 2.22% from 2.2%.
Financial troubles: Bonds had risen higher earlier in the day after troubled investment bank Lehman Brothers (LEH, Fortune 500) was downgraded by Goldman Sachs and Citigroup.
A day before, Lehman reported a nearly $4 billion loss for the third quarter, the company's largest quarterly loss since going public in 1994.
The downgrades stoked concern about further mortgage-related losses at other major financial institutions and sent stocks tumbling.
"People are scared to death that stocks are going to go down... and they have to put their money somewhere," said Chris Currer, director of fixed income trading at BMO Capital Markets in Chicago.
Shares of Lehman dropped more than 40% at the start of Thursday trading, but recovered slightly as the day wore on.
Investors also dumped shares of American International Group (AIG, Fortune 500), Merrill Lynch (MER, Fortune 500), Washington Mutual (WM, Fortune 500), and Wachovia (WB, Fortune 500).
The sheer volatility of stocks has driven investors to less-risky investments, Currer said. Treasurys are often used as a safe-haven during times of economic distress.
Oil: Stocks recovered later in the session Thursday as oil prices fell, pulling bonds off their highs.
Crude oil futures ended the day down $1.71 to 100.87 a barrel, well within striking-distance of the psychologically significant $100-a-barrel mark.
Commodity investors have been worried that falling demand for oil have made high prices unsustainable. However, lower prices for energy also eases the cost-burden on the strained U.S. economy.
Economy woes: A government report about the trade deficit, which spiked in July to the highest level in nearly 16 months, also gave investors reason to buy bonds.
The Commerce Department said Tuesday that due to record-high oil prices in July, imports exceeded exports by $62.2 billion. Economists polled by Briefing.com had only expected the trade deficit to hit $58 billion. 
