Treasurys give up gains as stocks recover

NEW YORK (CNNMoney.com) -- Treasurys gave up gains late Monday as stocks rebounded and the euro recovered from earlier losses.

What prices are doing: The benchmark 10-year note fell 8/32 to 100-4/32, pushing the yield up to 3.49% from 3.45% on Friday. Bond prices and yields move in opposite directions.

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The 30-year bond dropped 8/32 to 100-9/32 and yielded 4.36%, while the 2-year note edged down 1/32 to 100-12/32 with a 0.81% yield. The 5-year note fell to 101-14/32, yielding 2.2%.

What's moving the market: Treasurys moved inversely with stocks on Monday, falling in late trading after being lifted earlier in the day.

Stocks ended higher Monday after struggling throughout the session amid continued worries about European debt problems and doubts about the effectiveness of a $1 trillion rescue package created for the euro zone.

Meanwhile, the euro also erased losses after plunging to a 4-year low against the dollar in earlier trading as investors flocked to the safety of the U.S. currency.

Treasurys had been carrying over gains from last week as euro zone debt woes remained and investors lacked evidence of any improvement in the region, said Richard Bryant, head of Treasury Trading at MF Global.

U.S. government-backed Treasurys are viewed as "safer" investments and are particularly attractive during times of economic uncertainty.

But because Treasurys tend to take their cues from equities, the safe haven appeal of the bond market was dampened as stocks made a comeback, signaling renewed confidence in the market.

Lending rates: Bank-to-bank lending rates for three-month loans continued to rise on Thursday. The London interbank offered rate, or Libor, ticked up to 0.46% after rising to 0.445% on Thursday.

"The number one thing right now is that banks in Europe in particular are willing to lend with the central bank rather than receive extra credit for lending to each other, and this has caused pressure in the interbank market," said Bilal Qureshi, a trader at MF Global.

Doubts about the effectiveness of the European aid package and concern that Greece's debt crisis may spread to other countries has added fear to the lending market, said Qureshi.

"These [banks] already have credit risk on their books, so they're not looking to expand their balance sheets and take on more credit risk, because they don't know where the exposure of other banks lies," he said.

Libor is a daily average of interest rates that 16 London banks charge each other to lend money, and is used as a benchmark to calculate adjustable-rate mortgages and other loans.

Higher Libor rates indicate less lending among banks, while lower levels signal an increasing willingness to lend.