Treasurys rise on weak retail data

Dismal April report raises demand for safe-haven assets.

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By Ben Rooney, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Treasury prices rose Wednesday after a government report showed retail sales unexpectedly fell in April, boosting demand for safe-haven assets such as U.S. debt.

Separately, a key short-term lending rate fell to an all-time low, suggesting that banks are becoming more confident.

The Commerce Department said retail sales were down 0.4% last month after an upwardly revised 1.3% decline in March. Economists surveyed by Briefing.com had expected retail sales to be flat in April.

After adjusting for sales of automobiles, retail sales fell 0.5% in the month, compared with expectations for a 0.2% increase.

The dour report damped hopes that a speedy economic recovery was in the works and curbed investors' appetite for risk, said Kevin Giddis, head of fixed income sales at Morgan Keegan.

"The safe haven trade is coming back because declaring the recession over is a premature act," he said.

Stocks slumped in response to the retail sales figures and a report that showed a big jump in foreclosures.

Bond prices: The benchmark 10-year note was up 17/32 to 100 4/32 and its yield fell to 3.11% from 3.18%. Bond prices and yields move in opposite directions.

The 30-year bond was up 31-2/32 to 102- 21/32, and its yield slipped to 4.09% from 4.16%.

The 2-year note ticked up 1/32 to 100, and its yield held at 0.9%.

The yield on the 3-month was unchanged at 0.19%.

Lending rates: A key bank-to-bank lending rate fell to an all-time low Wednesday, suggesting the credit crisis is waning for many financial institutions.

The 3-month Libor fell to 0.88% from 0.91% Tuesday, according to Bloomberg.com. Last week, the 3-month rate dropped below 1% for the first time since 1986, when the British Bankers Association started keeping records.

The overnight Libor rate held steady at 0.22%.

Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London. The closely watched benchmark is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.

The decline in the 3-month rate is "an indication that frozen credit markets are returning to normalcy," said Mike Schenk, senior economist for the Credit Union National Association.

"Bankers are more willing to lend, not only to each other, but to consumers as well," he said. "The question is, are potential borrowers wiling to borrow?"

Consumer confidence remains at historically low levels as unemployment stands at a 25-year high, suggesting that borrowing in the so-called real economy is likely to remain depressed.

Still, lower bank lending rates are encouraging because "the markets will probably recognize before consumers that things are getting better," Schenk said.  To top of page

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