Treasurys pop as stocks flop
Dow in triple-digit tumble as World Bank cuts its annual forecast. The Federal Reserve buys $7.5 billion worth of debt.
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| Click on the chart to see other government bond prices and yields. |
NEW YORK (CNNMoney.com) -- Government debt prices jumped Monday as Wall Street experienced a massive sell off and the government bought back $7.5 billion in debt.
Stocks fell hard, with the Dow Jones industrial average down 200 points after the World Bank cut its 2009 forecast. The institution predicted that global growth will shrink by 2.9% versus its earlier forecast of 1.7%. European equity markets also fell.
Investors shuffle funds into the safety of bonds when they are concerned about volatility in other parts of the marketplace.
The benchmark 10-year note was up 25/32 to 95-12/32, and its yield dipped to 3.68%. Bond prices and yields move in opposite directions.
The 30-year bond rallied 1-8/32 to 97-2/32, and its yield fell to 4.42%.
The 2-year note was up 5/32 to 99-16/32, and its yield edged down to 1.13%. The yield on the 3-month bill was 0.18%.
Government debt prices have largely traded lower since the end of 2008 under the weight of unprecedented amounts of supply. As bond prices sank, yields surged, pushing other key lending rates higher. In particular, the 30-year fixed mortgage rate tends to move in tandem with the benchmark Treasury yield.
To prevent further spikes in Treasury yields - and by extension mortgage rates - the Federal Reserve has been buying back $300 billion in government debt, a program called quantitative easing.
Monday, the Fed bought $7.5 billion in debt that matures between December 2013 and April 2016.
On Thursday, the government will acquire debt maturing between August 2026 and May 2039.
The quantitative easing program has had less of an impact than many analysts would have liked, with yields significantly above where they were when the program was launched.
The Federal Reserve is set to meet on Tuesday and Wednesday of this week and release a statement of their economic outlook.
Bond traders will be listening closely for any language indicating a change to the quantitative easing program or rates.
The Fed's key lending rate currently stands at a target range of between zero and 0.25%. The market does not expect the Fed to hike the key lending rate, especially after a couple of reports last week indicated that inflation is not a near-term concern.
Even as the government buys back debt, it is continuing to sell debt at a rapid pace. The Treasury will auction $104 billion worth of debt during the week.
The government will sell $40 billion in 2-year notes Tuesday, $37 billion in 5-year notes Wednesday and $27 billion in 7-year notes Thursday.
Lending rates: Bank-to-bank lending rates continued to hover around record lows, an indication of some relief for once-frozen pipelines of credit.
The three-month Libor held steady Monday at a record low of 0.61%, according to Bloomberg.com. The overnight Libor rate was also unchanged at 0.27%.
The London Interbank Offered Rate -- or Libor -- is a daily average of rates that 16 different banks charge each other to lend money. The closely watched benchmark is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor. 
