Treasurys bounce back after 3-day slip
Government bonds resume rise in short session after two days of record auctions did little to stymie demand.
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| Click chart to view latest bond prices |
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| Click chart to view latest bond prices |
NEW YORK (CNNMoney.com) -- After an unusual three-day slide, Treasurys bounced back Wednesday, resuming their nearly uninterrupted upward trend that has persisted since mid-September.
Bond investors bought up Treasurys after government reports on jobs, durable goods, consumer spending and personal income confirmed continued economic weakness and a poor labor market.
Bonds fell earlier in the week as the Treasury Department auctioned off a record $120 billion in bonds as the government attempts to finance its ever-growing debt. Treasury last week promised $13.4 billion to the U.S. auto industry, and on Tuesday, announced it has made $4.7 billion in capital investments in local banks.
The government has essentially used up the last of the first $350 billion Congress allotted to rescue the financial markets, and may soon look to seek the release of the final $350 billion of the $700 billion rescue plan.
Despite a record issuance of government debt, investors continue to stockpile government bonds in their portfolios and corporate balance sheets. With the stock and commodities markets plunging this year, investors have placed their funds in Treasurys with the hope that government bonds will provide a safe investment.
Dour economic news is expected to persist well into 2009, and analysts forecast Treasurys will continue to rise for at least several more months, pushing yields even lower. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last week before rising slightly in the past three sessions.
Ultra-low yields have done nothing to hold back buyers. As a result, Treasury bonds have performed very well this year, returning 14.2% to investors, according to a Lehman Brothers index. Investors holding S&P 500-based index funds have lost 41% of their investment so far in 2008.
Bond prices: Treasurys traded higher Wednesday in a short session that will end at 2 p.m. ET. The Treasury market will be closed Thursday and will reopen on Friday.
The 30-year long bond edged up 1/32 to 136-29/32, and yielded 2.64%, down from 2.65%. Bond prices and yields move in opposite directions.
The 2-year note rose 1/32 to 99-30/32, and its yield dropped to 0.92% from 0.93%.
The 10-year note actually slipped 2/32 to 114-28/32, and its yield rose to 2.18% from 2.17% from Tuesday.
The yield on the 3-month note held at 0.015%, and has been hovering around 0% for two weeks. Yields near the zero mark on short-term bills are an indication that investors are completely risk-averse, prioritizing safety above profit.
Lending rates: Meanwhile, lending rates between banks remained near record low levels. The overnight Libor rate rose to 0.15% from 0.12% from Tuesday, according to Bloomberg.com, and the 3-month Libor rate held steady at 1.47%, according to Dow Jones.
Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend money in London, and is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.
Two market gauges showed confidence hovering around Tuesday's levels.
The "TED spread" held even at 1.46 percentage points. The TED spread measures the difference between the 3-month Libor and the 3-month Treasury bill, and is a key indicator of risk. The higher the spread, the more unwilling investors are to take risks.
Another indicator, the Libor-OIS spread, fell to 1.24 percentage points from 1.25 percentage points. The Libor-OIS spread measures how much cash is available for lending between banks, and is used for determining lending rates. The bigger the spread, the less cash is available for lending.
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