US Treasury prices finished mostly lower on Friday as a rebounding stock market curbed the bid for safe-haven US government debt. US stocks climbed as the kickoff to the holiday shopping season lifted retail stocks across the pricing spectrum. Signs of progress in a plan to relieve credit market strain also helped major banking stocks.
Shares of J.P. Morgan Chase, Bank of America and Citigroup all rose more than 2 percent. The three banks, spearheading an effort to establish a superfund to ease problems in the credit market, are expected to seek support from others in the industry.
"The Treasury market is waxing and waning on the flight to quality bid and that eased up a little bit today because we saw a modicum of calm in the equity markets," said Josh Stiles, senior bond strategist at IDEAglobal in New York. The Dow Jones industrial average rose 181.84 points, or 1.42 percent, to close at 12,980.88. The Standard & Poor's 500 Index rose 1.69 percent and the Nasdaq Composite Index climbed 1.34 percent.
Treasuries with maturities ranging from two to five years appeared to come under the most pressure, perhaps as traders positioned themselves for upcoming supply. The Treasury will sell two- and five-year notes in the coming week, Stiles noted.
Talk about a 25-basis-point rate cut by the Federal Reserve, with a chance of a half percentage-point rate cut in December also contributed to the bounce in equity prices and the sell-off in bonds, said Andrew Brenner, analyst at MF Global Inc in New York. At the 2 pm (1900 GMT) close, two-year note yields rose to 3.07 percent from 3.01 percent late on Wednesday, while the price fell 3/32.
Ten-year notes yielded 4.01 percent, versus 4.02 percent late on Wednesday, their price up 3/32. US dollar-denominated fixed-instrument markets were closed on Thursday for the Thanksgiving holiday. While a better tone in US equities weighed on Treasuries prices, analysts said the downside for those instruments was limited by worries about credit availability.
Those worries were reflected in the rise of London interbank offered rates for two-month euro deposits to fresh 6-1/2 year highs on Friday. Three-month euro rates had their biggest weekly rise since mid-August amid concern over banks' year-end funding aggravated by the general credit crunch.
Shrinkage in the asset-backed commercial paper market is forcing banks to turn to Libor-based funding, while supply of period funding is lower as banks cling to cash as a contingency against credit-related losses.
"You can get some back up (in Treasury prices) related to new supply or calmer stock market conditions, but credit concerns will still provide good support for Treasuries," Stiles said.
And while Wall Street did better on Friday, for the week, the Dow finished down 1.5 percent, the S&P lost 1.2 percent, and the Nasdaq fell 1.5 percent. Trading in stocks and bonds was light on Friday. Japanese markets were closed for a holiday, and many traders extended Thursday's Thanksgiving Day holiday through the weekend.