Treasurys narrowly mixed as Dubai concerns ease

AP News
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Posted: Nov 30, 2009 6:05 PM

Treasury prices traded in a narrow range Monday, closing mixed as investors' concerns about Dubai's credit problems eased.

In late trading, long-term Treasurys yields were slightly lower, while yields on short-term Treasurys, considered among the safest places to park cash, edged higher.

The price on the 10-year Treasury note was unchanged at 101 15/32. Its yield, considered a benchmark for many consumer loans, dipped to 3.20 percent from 3.21 percent late Friday.

Investors were reassured by signs that Dubai's debt struggles were unlikely to touch off broader, global credit problems, so they cooled their buying of U.S. government bonds. On Friday, as U.S. markets reacted to news that Dubai's main investment arm, Dubai World, could default on $60 billion in debt, demand for Treasurys surged as investors avoided stocks and other investments deemed too risky.

Treasurys did draw support Monday from institutional investors adjusting their portfolios as the month ended, according to John Flahive, director of fixed income at BNY Mellon Wealth Management.

A move by the Federal Reserve to start setting up programs to ease its unprecedented liquidity programs had little effect on trading, Flahive said.

The Federal Reserve Bank of New York is beginning, on a small scale, to set up reverse repurchase agreements to help shrink the Fed's balance sheet. The Fed bought assets as part of its efforts to stimulate the economy. The reverse "repo" agreements as they are known call for the Fed to sell securities from its portfolio with an agreement to buy them back later.

The initial agreements are being completed to ensure readiness when a larger roll out of the program takes place, though there was no timetable set.

"They were very transparent so the market hasn't reacted," Flahive said of the Fed's program.

In other trading, the price of the two-year note rose 1/32 to 100 5/32. Its yield dipped to 0.67 percent from 0.69 percent.

The price of the 30-year bond rose 6/32 to 103 1/32. Its yield fell to 4.20 percent from 4.21 percent.

The yield on the three-month T-bill rose to 0.05 percent from 0.01 percent. Its discount rate was 0.06 percent.

The cost of borrowing between banks rose fractionally. The British Bankers' Association said the rate on three-month loans in dollars _ the London Interbank Offered Rate, or Libor _ increased to 0.2566 percent from 0.2556 percent.