NEW YORK (CNNfn) - Short-term U.S. Treasurys jumped higher Wednesday, pushing yields on two-year notes to all-time lows as investors kept snapping up safe assets like government debt after last week's attacks raised fears of a recession and stock market losses deepened.
Short-term notes received an extra boost as U.S. shares reversed early gains to tumble sharply to their lowest levels since late 1998 on worries about already-fragile corporate profits in the aftermath of the attacks.
At 2:00 p.m. ET, two-year notes were up 8/32 to 101-17/32, yielding 2.80 percent, the lowest since the maturity was first issued in 1972 and down sharply from 3.19 percent just after last week's attacks. Five-year notes rose 11/32 to 103-14/32, yielding 3.81 percent.
Ten-year notes US rose 2/32 to 102-12/32, yielding 4.69 percent, while 30-year bonds dropped 4/32 to 97-15/32 to yield 5.55 percent.
A selloff continued in the long-term notes as 30-year bonds continued to fall for a third session on expectations that the government is to sharply increase spending and issue more debt to pay for any reconstruction and new defense measures.
"The front of the yield curves are still rallying because of the slide in the equities market today. In addition, the Fed's been extremely aggressive in adding liquidity. Over the past week, we've seen overnight rates trading extraordinarily soft. That's providing for some stability of the markets, said Michael Cloherty, bond strategist with Credit Suisse First Boston."
The Fed, along with central banks globally, cut interest rates early this week for the eight time this year in an effort to boost confidence among businesses and consumers and to keep liquidity flowing into the financial system. The Fed's rate cut this year took its federal funds overnight bank lending rate to 3.0 percent, its lowest since 1994.
"Yesterday, the Fed's effective funds rate, the average of the funds rate that exists throughout the day, was 1.25 percent, way below their new 3 percent target. Today, it's even softer than that, below 1 percent," Cloherty said.
The federal funds rate traded at 0.5 percent on Wednesday, far below the new target, as the Fed has pumped cash into the financial system.
The Fed has said it would keep providing "unusually large" amounts of liquidity until markets begin functioning normally again.
Expectations of more government debt rose after the Treasury Department said Monday it had canceled scheduled buybacks in September but would restart the program in October. An increase in government debt supply erodes the value of current issues by making them less scarce.
"The 30-year bond is being hurt a little bit by fears of increased government spending, no more surplus, deficit spending. But what has mitigated the losses a little bit today is the fact that oil is down so much," said Bill Hornbarger, bond analyst with A.G. Edwards.
Crude oil futures on the New York Mercantile Exchange (NYMEX) plunged seven percent to their lowest in two months midday Wednesday in a sell-off spurred by concern over oil demand amid fears of a global recession.
NYMEX October crude slumped $1.90 to $25.80, the lowest since July 23, when it hit $25.86.
Dollar stays weak against euro, yen
The dollar fell further against key currencies Wednesday as U.S. stocks extended losses, fueling fears that an already weakened U.S. economy could sink into recession.
At 2:00 p.m. ET, the euro traded at 93.14 U.S. cents, up from 92.07 cents late Tuesday.
The dollar fell to ¥117.40, down from ¥117.48 late Tuesday.
"We are following the stock market here and the more weakness we see there the weaker the dollar is going to get," said Grant Wilson, vice president and trader at Mellon Bank in Pittsburgh. 
--from staff and wire reports
|
