Treasurys retreat after recent runup

Bond prices fall as investors measure the impact of the Federal Reserve's plan to buy $300 billion of long-term Treasurys.

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By Ben Rooney and Kenneth Musante, staff writers

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NEW YORK ( -- Treasury prices fell Friday as investors stepped back from a recent runup to mull the Federal Reserve's plan to buy $300 billion of government bonds - a move the central bank has hinted at for months.

"Market participants are just trying to come to some consensus on what this means," said Jim DeMasi, analyst with investment firm Stifel Nicolaus & Co. "I think its still too soon after the announcement."

The Fed has been looking at all of its options to help lower interest rates - many of which are tied to the 10-year Treasury note. Many hope the Fed's move will help inject some life into a market that has been slumping all year.

Treasury prices soared Wednesday after the Fed announced the plan, but came off their highs as investors mulled the impact for the bond market.

"Treasurys now become more embedded with risk [because] we don't know how effective [it will be], or how quickly it will be implemented," said William Larkin, fixed income portfolio manager with Cabot Money Management.

The Fed's plan: In a policy statement Wednesday, the Fed said it would buy a total of $1.2 trillion in assets, including $300 billion in Treasurys and $750 billion in mortgage-backed securities, to help increase activity in the credit markets.

By purchasing Treasurys, the central bank hopes to drive down interest rates on other types of loans, such as home loans and corporate debt, which would help boost the overall economy.

The Fed said it would provide more information about its purchasing operations early next week. It plans to begin buying Treasurys late next week, and will hold purchase operations an average of 2 to 3 times a week going forward.

Meanwhile, the market is bracing for another round of auctions next week.

The Treasury Department plans to offer a total of $98 billion in government debt next week after auctioning $63 billion last week.

The Treasury will auction $40 billion in 2-year notes on Tuesday; $34 billion in 5-year notes on Wednesday and $24 billion in 7-year notes on Thursday.

Treasury prices: The benchmark 10-year note traded down 10/32 to 101-30/32 and its yield rose to 2.65% from 2.6% late Thursday.

The 30-year bond slipped 14/32 to 97-6/32 with a yield of 3.66%.

The 2-year note remained virtually unchanged at 100-1/32, and yielded 0.88%.

Lending rates: The 3-month Libor rate fell to 1.22% from 1.23% Thursday, according to data on The overnight Libor rate eased to 0.28% from 0.3%.

Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London.

Two credit market gauges reflected increased liquidity. The "TED" spread shrank to 1.02 percentage points from 1.04 percentage points Thursday. The narrower the TED spread, the more willing investors are to take risks.

The Libor-OIS spread slipped to 0.99 percentage points from 1 percentage point on Thursday. On Wednesday, it stood at 1.07 percentage points. A narrower spread indicates that more cash is available for lending. To top of page

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