10-year Treasury yields drop to 2.67 percent

Tuesday, September 14, 2010

Treasurys up for second day in a row

NEW YORK — Investors snatched up Treasurys for a second straight day, even with news of rising retail sales.

The Commerce Department reported Tuesday that retail sales rose 0.4 percent in August, the best showing since March. Reports of a pickup in economic activity usually send Treasurys lower, as investors sell safe government bonds to place bets on riskier assets like stocks.

But the opposite happened: The 10-year Treasury note was up 62.5 cents on Tuesday to $99.53. The higher price lowered the yield to 2.67 percent from 2.75 percent late Monday.

Explanations for the market’s direction varied widely. Some fund managers were positioning their portfolios for a change in a widely used Barclays’ index. There are also plenty of corporations unwinding hedges that cause them to buy Treasurys, said Don Ellenberger, co-head of government and mortgage-backed securities at Federated Investments.

Bond traders have also started chattering about the prospects for the Federal Reserve to begin another round of Treasury buying, Ellenberger said. The next meeting of the Federal Reserve’s open market committee comes Sept. 21.

Another reason: The 10-year note’s yield briefly hit 2.83 percent Monday morning, the highest rate for the note since early August. The higher yield likely drew in bargain hunters, Ellenberger said. Many in the bond market expect the 10-year to trade in a range below 3 percent until the econonmy shows better signs of life. The 10-year yield is a common benchmark for corporate and mortgage loans.

In other trading on Tuesday, the yield on the 2-year note slid to 0.50 percent from 0.54 percent the previous day. The price rose 6.25 cents to $99.71. The yield on the 30-year long bond also fell, dropping to 3.79 percent from 3.85 percent late Monday. The price of the bond maturing in 2040 gained 96.8 cents to $101.40.

The yield on the three-month T-bill rose from 0.13 percent to 0.14 percent. Its discount was 0.14 percent.

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