US Treasuries rise

US Treasury debt prices rose on Tuesday, as some doubts about the cost and effectiveness of the government's proposed $700 billion bailout of Wall Street stoked safety bids for government bonds. Traders focused on testimony by top officials, including Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, who urged lawmakers for a speedy passage of the historic rescue of the financial industry.
Uncertainty over whether the bailout can be quickly enacted in an effort to thaw the credit market has been a catalyst to buy safe-haven government bonds, analysts said. But a modest rebound in stocks on hopes the bailout may avert a severe recession drew some flows away from Treasuries in late trade.
"The testimony that is going on today is the driver, not only in Treasuries, but across the board," said John Derrick, director of research with US Global Investors, Inc in San Antonio, Texas.
"We have seen a bit of fear earlier about the proposal maybe getting postponed with quite a big flight-to-quality into T-bills," Derrick said. "Later in the day that has faded as the market has come to the realisation that something will get done, I anticipate this week," Derrick said.
"That is affecting the stock market and the bond market," he added. Bonds' advance was also checked by concerns over how much such a bailout would cost the federal government. The benchmark 10-year Treasury note's price, which moves inversely to its yield, rose 4/32 for a yield of 3.84 percent compared with 3.85 percent late Monday.
Credit markets remain under severe strain, as a closely watched gauge showed banks have remained reluctant to make loans to each other, making credit scarce for companies and consumers. The spread between the borrowing cost on three-month dollar funds in the interbank market and the expected three-month rate on benchmark US federal funds widened, signalling banks' unwillingness to part with their cash beyond a week.
Three-month US Treasury bill rates were down to 0.81 percent from 0.89 percent late Monday, reflecting a resurgent flow into these safe, ultra-short dated government securities. The 2-year Treasury note's price was up 5/32 for a yield of 2.08 percent, from 2.16 percent late Monday. The inflation-sensitive 30-year Treasury bond was down 2/32 in price for a yield of 4.43 percent, against 4.42 percent late Monday.