Treasury prices jump
Concern about the economy dominates the market despite Geithner bailout plan and Senate OK of stimulus.
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| Click on the chart to see other government bond prices and yields. |
NEW YORK (CNNMoney.com) -- Treasury prices jumped Tuesday as investors looked past the massive rescue packages being pushed around Washington to the staggering economy commanding them.
Investors sought the safety of government bonds and sold stocks, with the Dow Jones industrial average down as much as 384 points.
Testimony from Federal Reserve Chairman Ben Bernanke added to investor sentiment. While Bernanke defended the Fed's efforts in the current crisis, he also said the central bank's efforts were "no panacea."
Bank bailout: Treasury Secretary Tim Geithner unveiled the Obama administration's plan to shore up the financial sector. In addition, the Senate passed its version of President Obama's stimulus package, sending the bill to a conference with the House.
The bank rescue plan attempts to get private investors to purchased troubled assets, commits $1 trillion to ease lending, and adds a bank "stress test" to asses the health of the nation's banking system.
"It is starting to dawn on investors that this is going to take a lot longer than anyone expected, it is going to take a lot more money than anyone expected," said Michael Herbst, mutual fund analyst at Morningstar. "The global financial system is still a lot more fragile than anyone had hoped."
Geithner pleaded for Americans to understand that restarting credit was as important to the economy pulling out of the recession as job creation, which is the central focus of President Obama's stimulus plan.
"What is being disclosed is that we have some serious economic issues and it is probably not going to be a quick fix," said William Larkin, portfolio manager at Cabot Money Management, ahead of Geithner's speech.
Investor confidence depends on a belief that the financial system is on a path to recovery. "You can't play Monopoly without a banker," said Larkin.
Stimulus: The Senate approved its $838 billion version of a stimulus plan by a vote of 61 to 37. Approval was largely expected after a preliminary vote Tuesday, but now the measure needs to be reconciled with one passed by the House last week.
Democrats hope to have a compromise measure on Obama's desk by next Monday, the Presidents Day holiday.
Obama used his first prime-time news conference as president to garner support for the financial rescue package and emphasize its urgency. Given the weakened private sector, "the federal government is the only entity left with the resources to jolt our economy back to life," he said.
Quarterly refunding: As both Obama and Geithner look to spend money on an economic recovery, the Treasury market started its quarterly refunding auction. Last week, the Treasury announced a record $67 billion refunding plan, adding longer-term maturity debt to the auction schedule in an effort to pay for the government's stimulus spending.
Herbst said investors would be keeping a close eye on the auctions. "Everyone is going to be watching the new auctions pretty closely for some indication that the global appetite for Treasurys is starting to wane," he said.
On Tuesday, $32 billion of 3-year notes were auctioned, with a strong demand of more than $85 billion worth of bids.
On Wednesday, the government will auction $21 billion of the 10-year note and $14 billion worth of 30-year bonds will be sold Thursday. Meanwhile, the government is also set to auction $84 billion of shorter-term notes this week as well.
Larkin said weak corporate results have chipped away at the availability of safe havens for investors. "We still had more problems surface in this last earnings announcement cycle, so the universe of conservative fixed income investments is shrinking," he said.
Debt prices: Bond prices have been seesawing in recent sessions as recessionary fears compete with the record volume of debt being sold to finance the government's rescue package.
The 10-year benchmark note was up 1 14/32 to 107 27/32 and its yield dipped to 2.83%. Bond prices and yields move in opposite directions.
The 30-year bond jumped 2 22/32 to 118 and its yield fell to 3.51%. Meanwhile, the 2-year note ticked up 7/32 to 99 30/32 and its yield dipped to 0.88%.
The yield on the 3-month note was 0.33%. Demand for the shorter-term note has been seen as a gauge for investor confidence.
Lending rates: Bank-to-bank lending rates were largely unchanged. The 3-month Libor rate ticked lower to 1.22% from 1.23% Monday, according to data on Bloomberg.com. The overnight Libor rate, meanwhile, dipped to 0.30% from 0.31% Monday.
Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London and is used to calculate adjustable-rate mortgages among other consumer loans. More than $350 billion in assets are tied to Libor.
Two credit market gauges showed increased confidence in the marketplace. The "TED" spread narrowed to 0.90 percentage point from 0.94 percentage point the day before. The smaller the TED spread, the more willing investors are to take risks.
Another market indicator, the Libor-OIS spread, dipped to 0.95 percentage point from 0.96 percentage point the day earlier. The narrower the spread, the more cash is available for lending. 
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