Pursuit of safe bets lifts 10-year Treasury price

AP News
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Posted: Oct 03, 2011 5:05 PM
Pursuit of safe bets lifts 10-year Treasury price

Long-term Treasury prices rose Monday as bond-buying by the Federal Reserve and fears about Europe drew traders to the relative safety of government debt.

The yield on the 10-year Treasury note fell to 1.79 percent from 1.91 percent late Friday. The yield hit a record low of 1.71 percent last month after the Fed's plan was announced. The 10-year note rose $1.25 for every $100 invested.

The Fed was buying about $2.5 billion of 30-year bonds Monday, according to the Federal Reserve Bank of New York. The purchases are the first step in a plan to buy $44 billion of mostly 10- and 30-year Treasurys, and sell the same amount of shorter-dated investments.

By buying longer-dated Treasurys, the Fed hopes to bring down long-term interest rates. The yield on the 10-year Treasury is the basis for rates on many kinds of loans including mortgages.

Lower interest rates might encourage people to borrow and banks to lend. They also might make Treasurys less attractive, encouraging investors to move money into higher-risk investments such as stocks.

The yield on the 30-year Treasury bond fell to 2.75 percent at 3:44 p.m. Eastern time Monday, from 2.90 percent late Friday. It was the lowest yield since the beginning of January 2009, when the global financial system was in the thick of its worst crisis in generations.

The 30-year bond gained $3.53 for every $100 invested. Bond yields fall as their prices rise. Yield is the income traders would receive from holding a bond until its expiration date.

Worrying signals from Europe caused investors to dump higher-risk investments that might suffer in a recession, such as stocks and energy commodities. Their money flowed into lower-risk bets such as dollars and Treasurys.

Greece admitted on Sunday that its deficit will be higher than it had promised its international lenders. That might make them reluctant to release its next round of bailout cash. Without that money, Greece will be unable to pay its bills sometime this month.

Yet finance ministers from other European nations did not ready with a detailed bailout plan. Germany and others want banks to take bigger losses on their holdings of Greek debt, effectively shifting some of the cost from taxpayers to private companies. That might threaten banks in France and Germany, prompting another wave of bailouts.

At worst, the shock might freeze global lending and cause a deep recession.

The yield on the two-year Treasury note fell to 0.24 percent from 0.25 percent late Friday. The three-month T-bill paid a yield of 0.01 percent, unchanged from Friday. Its discount wasn't available.