10-year yield rises on European bailout news

AP News
Posted: Sep 07, 2011 5:26 PM
10-year yield rises on European bailout news

Prices for U.S. Treasury securities fell, lifting the yield on the 10-year note from a historic low, after signals that Europe's bailout of Greece is likely to progress.

Germany's high court on Wednesday backed the nation's role in the Europe's bailout fund, dismissing claims that it is an illegal use of taxpayer money. The move soothed fears that Germany might pull out of the rescue effort, which would effectively kill it.

Germany is expected to bear most of the cost of bailing out Greece, Ireland and Portugal because it has Europe's largest economy. Without German help, Greece might default on its debt in the next few weeks, roiling global markets.

The ruling made a default by Greece look less likely. Eurozone officials have warned that they will withhold the next chunk of money if Greece can't cut spending to meet goals set by its lenders. The cost of insuring Greek government debt against default has spiked.

An unexpected rise in the output of Germany's factories also drove traders toward bets that would profit in a growing global economy.

Meanwhile, U.S. stocks got a boost from speculation about a new spending proposal from President Barack Obama. Obama is expected to unveil on Thursday a package of tax incentives, unemployment benefits and infrastructure spending that would total several hundred billion dollars. The money would benefit companies such as construction firms that can bid on the infrastructure jobs.

The news from Germany lifted stocks worldwide, reducing demand for lower-risk investments such as Treasurys. The S&P 500 index rose 2.1 percent; Germany's DAX jumped 4.1 percent.

At 4 p.m. EST, the yield on the 10-year note rose to 2.04 percent from 1.97 percent late Tuesday. On Monday it fell to 1.91 percent, the lowest since the Federal Reserve Bank of St. Louis began keeping daily records in 1962. The price fell 53 cents for every $100 invested. Bond yields rise as their prices fall.

Other investments that are seen as safe also fell. Gold lost $55.70, or 3 percent, to end at $1,817.60 an ounce. It's still up 28 percent this year.

In other trading, the yield on the 30-year bond rose to 3.36 percent from 3.26 percent late Tuesday. Its price fell $1.75 for every $100 invested. The two-year note's yield was unchanged at 0.2 percent.

The three-month Treasury bill's yield was unchanged at 0.02 percent. Its discount wasn't available.

The 10-year yield began the year at 3.29 percent. Treasurys are used as the basis for interest rates throughout the economy. The 10-year note is used to set the rates on loans including mortgages and business credit lines.