US Treasuries slid on Wednesday as stock market gains cut investors' bid for safe-haven US government debt and expectations of increased supply also weighed. After a steep rally earlier this week that pushed benchmark yields to their lowest levels since April, bonds retreated.
The prospect of more Treasury issuance to finance the government's bailout of government-sponsored enterprises Fannie Mae and Freddie Mac weighed on Treasuries prices, particularly on long-dated issues, analysts said. The benchmark 10-year Treasury note price, which moves inversely to its yield, fell 12/32, its yield moving to 3.62 percent. Thirty-year bonds fell 28/32 in price, for a yield of 4.22 percent.
"There's concern about how much money the government will ultimately have to borrow because of the take-over of Fannie and Freddie," said Gary Thayer, senior economist at Wachovia Securities in St. Louis, Missouri, referring to the Treasury's recent rescue of the two huge mortgage lenders.
The other element that weighed on Treasuries was "a bit of a recovery" in the stock market that allowed some of the flight-to-quality bid to back off, Thayer said.
The Dow Jones industrial average rose 38 points, or 0.34 percent. "The longer-term issue for Treasuries is the question of the government's having had to take financial responsibility for these massive troubled entities like Fannie Mae and Freddie Mac, and there could be more on the horizon," said James King, president and chief investment officer at National Penn Investors Trust Company in Wyomissing, Pennsylvania. Two-year Treasury notes, a traditional focus of the safe-haven bid, slipped 3/32, their yields rising to 2.21 percent.
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