Treasurys fall after European rescue package

NEW YORK (CNNMoney.com) -- Treasurys fell on Monday as investors regained confidence in the global economic recovery following the announcement of a $1 trillion European rescue package.

What prices are doing: The benchmark 10-year note dropped 31/32 to 100-22/32, pushing the yield to 3.55% from 3.43% on Friday. Bond prices and yields move in opposite directions.

• Facebook
• Digg
• Twitter
• Buzz Up!
• Email
• Print
• Comment on this story

The 30-year bond was down 2-16/32 to 103-16/32 with a 4.41% yield. The 2-year note lost 3/32 to 100-8/32 with a 0.88% yield. The 5-year note slipped to 101-3/32, yielding 2.27%.

What's moving the market: Investors were pulling out of Treasurys and turning to riskier assets on Monday.

Stocks rose sharply following the European Union's approval of a $1 trillion rescue package, created in an attempt to stabilize the euro and to aid debt-ridden Greece.

The largest provision, valued at $570 billion, will be government-backed loans, while the second part of the package is the expansion of a $77 billion stabilization fund. The International Monetary Fund will contribute an additional $284 billion.

Meanwhile, the U.S. Federal Reserve announced plans to join other central banks in re-establishing a program aimed at improving lending conditions.

What analysts are saying: "The European bailout has caused a push back into risky assets," said Michael Cheah, a bond fund manager at SunAmerica. "The market no longer needs Treasurys as a place to put money."

But Cheah said that the European rescue plan is not a cure-all, and the market's rally could ease as investors realize that global debt problems remain.

"It's like if a person is sick and you give them a whole bunch of balloons," said Cheah. "They'll have a smile on their face, but they'll still be in pain."

"This is like Greece," he added. "The problems are still there."

Cheah said investors will be looking at the euro's movement in upcoming weeks to a gauge the rescue package's effectiveness.

"Right now, the EU is trying to arrest the decline in the euro to show that confidence is restored, he said. "And for now, Treasurys are being traded as a flight to quality."

Lending rates: Bank-to-bank lending rates for three-month loans eased slightly on Monday amid the renewed investor confidence.

The London interbank offered rate, or Libor, edged lower to 0.421% after jumping to 0.428% on Friday.

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

Lending rates are still relatively low compared to record highs near 5% in the aftermath of Lehman Bros.' collapse, but Libor is trending upward, and Friday's rate was nearly double what it was in March, said Marc Ostwald, a fixed-income strategist at Monument Securities in London.

"We had slight easing today without a doubt due to the relief in the asset market, which had a massive bounce on the euro area rescue plan," said Ostwald.

However, lending rates could continue to tick upward as confidence in a global recovery wanes, he said.

"There's a general sense that the worst of this current variation of the crisis is over, but it's very difficult to argue that this has any permanence," said Ostwald. "And [Libor] may rise as people begin to be skeptical that all that is being offered is nothing more than papering over the cracks."