Bonds up ahead of big week
Market readies for $104 billion in auctions, 2 Fed purchase operations and an update from the
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| Click on the chart to see other government debt prices and yields. |
NEW YORK (CNNMoney.com) -- Treasury prices rebounded Friday ahead of a week full of auctions, government purchase operations, and the Federal Reserve's two day meeting.
Meanwhile, the group monitoring a key benchmark rate in the credit markets, the Libor interbank lending rate, changed its participatin requirements, opening the door for more banks to contribute to seting the rate.
The benchmark 10-year note was up 8/32 to 94-15/32 and its yield dipped to 3.81%, still well below the 4% threshold hit last week. Bond prices and yields move in opposite directions.
The 30-year bond jumped 23/32 to 94-31/32, and its yield dipped to 4.52%.
The 2-year note was up 1/32 to 99-10/32, and its yield edged down to 1.24%. The yield on the 3-month bill was 0.18%.
Government bond prices have bounced around this week. Early on, debt prices had rallied but the tide turned after a couple of reports indicated that inflation isn't a near term concern. President Barack Obama's program to overhaul the regulation for the financial markets also dinged prices.
Then on Thursday debt prices fell hard, after a better-than-expected reading for the Philadelphia Fed index of regional manufacturing and a pullback in continuing unemployment claims show signs of economic recovery.
Auctions and buybacks on tap: The Treasury announced Thursday that it will auction $104 billion worth of debt next week. The government has been selling Treasurys at an unprecedented pace to fund its rescue plan for the economy, pushing debt prices lower.
The perception that the economy may be in recovery mode has limited demand for Treasurys. Yields plummeted at the end of 2008, when investors ran to the safe haven of government debt amid worries about the global economy.
While falling Treasury prices indicate confidence in the economy, rising yields also pull mortgage rates higher. That rise in mortgage rates threatens to derail a recovery in the housing market.
To try to keep a lid on yields, the Fed has been buying back $300 billion of its own debt, a program called quantitative easing.
On Monday of next week, the Fed will buy an undisclosed amount of debt that matures between December 2013 and April 2016. On Thursday, it will snap up debt maturing between August 2026 and May 2039.
The Federal Reserve is scheduled to meet on Tuesday and Wednesday of this week.
The key lending rate currently stands at a target range of between zero and 0.25%. While the market does not expect the Fed to raise the key lending rate, the bond market will be listening for any update to the current quantitative easing campaign.
Libor accommodates more banks: The group that sets Libor, a daily average of rates that banks charge each other to lend money, said Friday it will accept applications from banks outside London to help determine the rates. The Libor -- London Interbank Offered Rate -- rates have until now been set using banks physically located in the British capital.
The closely watched benchmark is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.
The lending rate is used as a gauge for the health of the credit markets and have been hovering near record lows in recent sessions.
The three-month Libor held steady Friday at a record low of 0.61%, according to Bloomberg.com. The overnight Libor rate ticked up to 0.27% from 0.26%.
There is no specific number of banks that will be participating in the Libor rate under the new guidelines, according to John Ewan, director at the British Bankers' Association. The committee said it is open to increasing participation from the current 16 banks.
"The idea is actually to increase stability because if you have more banks on the panel, you should see less volatility," said Ewan. 
