Bonds dip as concerns over global debt crisis ease

AP News
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Posted: Dec 14, 2009 5:12 PM

Treasurys mostly fell Monday as concerns over a potential global credit crisis eased and the market absorbed the government's latest sale of debt.

The drop in prices extended a sell-off that began last week after disappointing auctions of 10-year notes and 30-year bonds. In total, the government issued $74 billion of new debt last week as part of its ongoing efforts to fund its massive economic stimulus programs.

The recent sales indicate that appetite for safe-haven investments like Treasurys could be waning as the U.S. economy recovers.

Meanwhile, concerns over a potential debt crisis in the Middle East abated, weakening demand for Treasurys. News that Abu Dhabi provided Dubai with a $10 billion bailout to help the city-state repay its debts helped lift stocks around the world. Investors had bought Treasurys and other safe havens in the past few weeks as worries over debt problems in Dubai and other countries escalated.

The yield on the benchmark 10-year note, which is often used as a guide for interest rates on consumer loans, rose to 3.56 percent from 3.55 percent late Friday. Its price fell 3/32 to 98 15/32, a four-month low.

Investors are also awaiting more direction on interest rates from the Federal Reserve. Analysts said investors are likely to make few big moves this week ahead of the Fed's meeting on interest rates, which wraps up Wednesday.

The central bank has kept interest rates near zero this year to make borrowing costs low and spur economic activity. But as the economy improves, investors question how long the environment of low interest rates will last.

The Fed has repeatedly said it has no immediate plans to raise rates, but investors are looking for more insight into the timing of a hike. When the Fed does raise rates, Treasury yields are likely to follow.

In other trading, the price of the two-year note fell 3/32 to 99 25/32, while its yield rose to 0.86 percent from 0.81 percent.

Bucking the trend, the price of the 30-year bond rose 11/32 to 98 6/32. Its yield dipped to 4.49 percent from 4.51 percent.

The yield on the three-month T-bill rose to 0.03 percent from 0.01 percent, while its discount rate was 0.04 percent.

The cost of borrowing between banks rose slightly. The British Bankers' Association said the rate on three-month loans in dollars _ the London Interbank Offered Rate, or Libor _ rose to 0.2538 from 0.2536 percent.