Treasurys begin week higher

By Blake Ellis, staff reporter


NEW YORK (CNNMoney.com) -- Treasurys rose Monday as stocks ended lower, the euro sank and fears about the global economic recovery persisted.

What prices are doing: The benchmark 10-year note rose 5/32 to 102-12/32, pushing the yield down to 3.22% from 3.23% on Friday. Bond prices and yields move in opposite directions.

The 30-year bond was the one exception, edging lower by 1/32 to 104-23/32 and yielding 4.1%. The 5-year note added 2/32 to 102-9/32, yielding 2.01%, while the 2-year note gained 1/32 to 100-16/32, yielding 0.75%.

What's moving the market: Treasury prices were lifted Monday as stocks fell and investors remained worried about European debt and its impact on the global economy.

Meanwhile, the euro slipped versus the dollar as investors continued to question the effectiveness of the $1 trillion European rescue package, which was introduced earlier in the month to stabilize the euro and aid debt-choked euro zone members.

"We have already seen the trillion-dollar bazooka, and that's not really turning things around," said Michael Cheah, a bond fund manager at SunAmerica. "This tells us that perhaps the Europe situation is still extremely sick with debt, and that's why there's still a flight to safety."

Treasurys are viewed as low-risk investments since they are backed by the U.S. government, and they are therefore particularly attractive during times of economic uncertainty.

Investors were also bracing for the week's upcoming auctions, which start with a $42 billion offering of 2-year notes on Tuesday. On Wednesday, the Treasury Department will hold a $40 billion auction of 5-year notes.

Separately, a report from the National Association of Realtors on Monday showed that existing home sales jumped 7.6% to a seasonally adjusted annual rate of 5.77 million units in April. Economists surveyed by Briefing.com had expected sales to rise to a 5.65 million unit rate last month.

Lending rates: Bank-to-bank lending rates for three-month loans continued to rise on Monday, helping to boost Treasurys.

The London interbank offered rate, or Libor, ticked up to 0.51% after rising to 0.497% on Friday.

"The Treasury market is looking at Libor and there seems to be fear that European banks are having difficulty getting funding," said Cheah. "The market still feels the European situation isn't under control, so there is fear that European banks are likely to lose money and American banks are reluctant to lend money to them."

Until investors feel confident about a solution for the euro zone's mounting debt, Libor will continue to tick higher, said Cheah.

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. To top of page

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