Treasurys fall as debt-limit deadline gets closer

AP News
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Posted: Jul 27, 2011 5:27 PM
Treasurys fall as debt-limit deadline gets closer

Government bond prices fell slightly Wednesday as lawmakers fought along party lines over raising the country's borrowing limit.

The continuing impasse and unyielding positions on both sides has brought the country closer to an Aug. 2 deadline to raise the limit or risk an unprecedented default on U.S. government debt.

The government auctioned $35 billion of five-year notes Wednesday at a yield of 1.58 percent, slightly higher than expected. Demand was moderate. Investors placed bids for 2.62 times the amount of notes up for sale, lower than the 2.73 average over the past four auctions.

A lower rating for U.S. government bonds or a default would cause interest rates to rise. But the markets are signaling that Treasury yields are safe for now, and no one's bailing out of U.S. debt yet. That's because traders believe that a default will lead to so much turmoil in the global markets that there will be a rush to purchase U.S. bonds.

Worries about the debt impasse roiled the stock markets Wednesday. The Dow Jones industrial average fell 198.75 points, or 1.7 percent, to 12,302.55, its biggest one-day drop since early June.

The price of the 10-year Treasury note fell 21.8 cents for every $100 invested. Its yield rose to 2.97 percent from 2.95 percent Tuesday.

The price of the 30-year Treasury fell 9.3 cents. Its yield rose slightly to 4.29 percent from 4.28 percent late Tuesday.

In the market for short-term Treasury bills, the three month T-bill paid a 0.07 percent yield. Its discount was 0.08 percent.