Treasury prices fell Tuesday as traders dumped the ultra-safe investments to join in a late-day stock market rally. Fears about inflation and Europe's debt crisis had caused U.S. government debt to swing wildly earlier in the day.
The price of the 10-year Treasury note fell 28 cents for every $100 invested, pushing its yield up to 2.19 percent at 3:21 p.m. EDT from 2.16 percent late Monday. The yield bounced during the day between 2.08 percent and 2.20 percent, an unusually wide range.
Fears about Europe's inability to solve its debt crisis pushed the 10-year yield down to 2.08 percent around 8 a.m. from 2.18 percent early Tuesday morning. French and German leaders appeared deadlocked over a plan to prop up European banks and prevent a messy default by Greece. They disagreed about how much of Greece's debt to forgive.
Concerns about market stability tend to increase demand for ultra-safe Treasurys, pushing their yields lower. That's because Treasurys would be more likely to hold their value if the crisis spread, compared to riskier investments such as stocks.
The 10-year yield rose after the government said that prices paid by companies increased 0.8 percent in September, the most in five months. Higher inflation hurts bonds by eroding the value of returns traders will collect in the future. Traders sold Treasurys on the news.
The yield then gyrated in a wide range for much of the day as stocks wavered between gains and losses. Later, as strong U.S. corporate profits overshadowed concerns about Europe, the Dow Jones industrial average rose strongly and Treasury prices sank. Stocks are riskier than Treasurys, but can offer bigger trading profits when the economy is strong.
The 10-year yield leaped from 2.11 percent at 12:40 p.m. to 2.20 percent at 3:15 p.m.
Falling prices push bond yields higher. Traders demand a higher return in exchange for holding the safe, but low-yield investments.
The price of the 30-year Treasury bond fell $1.41 per $100 invested, pushing its yield up to 3.20 percent from 3.14 percent late Monday.
The yield on the two-year Treasury note rose to 0.27 percent from 0.25 percent.
The yield on the three-month Treasury bill fell to 0.02 percent from 0.03 percent. Its discount wasn't available.
Treasurys fell sharply last week, ending an eight-month rally. The 10-year yield closed as high as 3.74 percent in February, and fell last month to a record-low 1.71 percent.
In other credit trading, a measure of France's creditworthiness weakened sharply after Moody's said a downgrade of France is more likely.
Moody's said overnight that the outlook for France's top-notch credit rating is under pressure. The rating agency said it might put France on notice for a possible downgrade because of its weakening economy and the high cost of bailing out struggling neighbors and banks.
Traders dumped French debt, with yields to increase sharply. The difference between Germany's borrowing costs and France's borrowing costs hit its highest point in nearly 20 years.
German bunds are considered an ultra-safe bet, similar to U.S. Treasurys. If France is paying far more to borrow, that means traders believe it is more likely to default. Analysts are concerned about the costs to France of bailing out its big banks, which hold billions in Greek debt.
Traders watch the difference, or spread, to adjust for any market-wide changes in interest rates. The French-German spread leaped to 1.12 percent on Tuesday, after starting the day below 1 percent. The sharp rise highlights fears that France will be the next victim of Europe's debt contagion.