Bonds fall on G-20 stock market gain

NEW YORK (CNNMoney.com) -- Bond prices fell Thursday as investors fled to the stock market, which rallied at the start of a meeting of the world's largest economies.

The stock market cheered the start of the G-20 meeting Thursday, a gathering of world leaders that is expected to address stabilizing financial markets and pulling the globe out of a deepening recession.

The Dow Jones industrial average (INDU) rose above 8,000 for the first time since Feb. 9, and the S&P 500 and Nasdaq composite also gained. By the end of the trading day, the Dow had slipped back below 8,000, but it still closed up 216 points.

Stocks and bonds have mostly traded in opposite directions during the recession. Confidence leads investors to take on riskier stocks, while fear drives them to safe-haven bonds.

"We've seen an unwinding of safe-haven trade over the last few days, so the stock market is the major factor driving bonds," said Kim Rupert, analyst at Action Economics.

Treasury prices remained lower even after the Federal Reserve Bank of New York bought $7.5 billion in long-term notes on Thursday as part of a debt-buyback program.

Investors were expecting a $7 billion purchase, Rupert said, but the bigger-than-expected purchase didn't convince investors to leave the rallying market in favor of bonds.

Continued stock market gains are likely over the next few weeks, which would put downward pressure on bonds, Rupert added.

But the bond market has likely "already priced in a pretty ugly number" and thinned trade ahead of the government's unemployment report that will be released Friday, she said.

"There's enough bearish and bullish news to keep bonds trading in a tight range for a while," Rupert said.

Bond prices: The benchmark 10-year bond slipped 29/32 to 99 29/32, and its yield jumped to 2.76% from 2.66% Wednesday. Bond prices and yields move in opposite directions.

The 30-year long bond fell 1 19/32 to 98 12/32, and its yield rose to 3.59% from 3.5%.

The 2-year note slipped 5/32 to 100, and yielded 0.90%, up from 0.82%.

The 3-month yield held at 0.21%.

Lending rates: The 3-month Libor rate was 1.17%, down from Wednesday's level of 1.18%, according to Bloomberg.com. The overnight Libor rate slipped to 0.29% 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 narrowed Thursday. The "Ted" spread fell to 0.96 percentage points from 0.97 points on Wednesday. The narrower the Ted spread, the more willing investors are to take risks.

The Libor-OIS spread slipped to 0.95 percentage points from 0.98 points. The narrower the spread, the more cash is available for lending.