US Treasury debt prices retreated rapidly on Thursday as stocks recovered on hopes a new federal housing initiative would ease the pain that has wreaked havoc on credit markets.
A top Democratic congressman, Democratic Rep. Barney Frank of Massachusetts, unveiled a bill aimed at getting the government involved in buying distressed mortgages, a bailout plan that Wall Street welcomed with open arms. Stocks recovered early losses, pushing benchmark 10-year notes down 30/32 for a yield of 3.55 percent, up 11 basis points from late on Wednesday.
Shoddy results for an auction of $10 billion in reopened 10-year notes contributed to the sell-off in bonds, with indirect bidders - a proxy for foreign buying - taking home a meager 6 percent of the sale. "This was weak across the board," said Josh Stiles, senior bond strategist at IDEAglobal. Equities found encouragement in a report from Standard & Poor's suggesting there was light at the end of the tunnel for mortgage-related losses at financial firms.
But analysts said that at a time when rating agencies have come under increasing scrutiny for possible conflicts of interest, their estimates should be taken with a grain of salt. "There'll be a floor in credit when there's a floor in home prices," said William O'Donnell, head of US interest rate strategy at UBS. "Last I checked, home price declines were accelerating."
Indeed, Thursday's economic data suggested the fall in home prices was having a knock-on effect on the consumer, raising the specter of a more prolonged recession. Retail sales fell 0.6 percent in February; analysts had expected a 0.2 percent gain. And, despite S&P's positive outlook, losses from the financial arena continued to mount, with big investment funds the latest to take a big hit.
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