Treasury prices mostly fell Friday, pushing their yields higher. Yields on short-term bills hovered near their lows of the year.
The yield on the three-month T-bill, considered among the safest investments, dipped to 0.01 percent from 0.02 percent late Thursday. Its discount rate stood at 0.02 percent. The yield fell as low as 0.005 percent earlier in the day, its lowest level since last December, when investors piled money into safe-haven investments at the height of the financial crisis. Yields briefly turned negative on Thursday.
Howard Simons, strategist with Bianco Research in Chicago, said traders are pressuring the short end of the yield curve because other investing options are not that attractive.
Investors essentially have two other options when looking for better returns _ longer-term bonds or stocks, he said. Yields on six- and 12-month bills are both below 0.3 percent, Simons noted, offering little improvement over the returns on 1-month and 3-month bills.
Buying up notes with maturities of a few years or more adds a lot of interest-rate risk, he said. Interest rates are currently at historical lows of near zero percent, so as the economy improves, it is widely expected rates will rise to combat inflation. That could sharply curtail the value of longer-term bond holdings such as Treasurys.
The other option of buying stocks is also not attractive right now for investors who are risk-averse, Simons noted.
For more cautious investors it makes more sense to just hold on to short-term bonds for a few months and see if other investments become more attractive, Simons said. While short-term bonds won't produce profit, they also won't lose anything either, as they could with longer-term bonds or stocks, he added.
Treasury prices also dipped as investors prepared for a new round of debt auctions next week. Treasury prices often decline ahead of auctions as traders try to boost the yield on newly auctioned government debt.
The government is auctioning $30 billion in three-month and $31 billion in six-month T-bills Monday along with $44 billion in two-year notes. It is selling $42 billion in five-year notes on Tuesday and $32 billion in seven-year notes on Wednesday.
Seven-year notes were reintroduced this year as the government finances its massive economic stimulus programs.
In other trading, the yield on the 10-year note, which is often used as a benchmark for consumer loans, rose to 3.37 percent from 3.34 percent late Thursday. Its price fell 8/32 to 100 1/32.
The price of the 30-year bond fell 9/32 to 101 10/32, pushing its yield up to 4.30 percent from 4.28 percent.
The two-year note fell 1/32 to 100 16/32. Its yield rose to 0.74 percent from 0.71 percent.
The cost of borrowing between banks dipped. The British Bankers' Association said the rate on three-month loans in dollars _ the London Interbank Offered Rate, or Libor _ fell to 0.2622 percent from 0.2666 percent.