US Treasuries prices fell on Friday for the third day in a row as better-than-expected earnings in the bank sector prompted investors to turn away from lower-risk debt. Citigroup Inc, the largest US bank, posted a smaller-than-expected quarterly loss on Friday, a day after J.P. Morgan Chase & Co posted a profit above Wall Street's expectations.
Also, mortgage finance giant Freddie Mac issued preliminary filings with the Securities and Exchange Commission, a step toward raising $5.5 billion in capital, which it had promised its regulator. Shares of Freddie Mac and rival Fannie Mae rose for a third consecutive day.
"For Treasuries it is pretty much an unwinding of the safe-haven trade," said Kim Rupert, managing director of global fixed-income analysis at Action Economics in San Francisco. "The markets have gotten a sense of relief that things have not gotten any worse, and some of the financial reports from the banks have not been as bad as they perhaps could have been."
Benchmark 10-year Treasury notes traded 26/32 lower in price on Friday for a yield of 4.10 percent against 3.99 percent late on Thursday. Ten-year yields reached to as high as 4.11 percent, marking the loftiest in over three weeks, and yields had their biggest weekly rise since mid-June. Two-year notes traded 11/32 lower in price for a yield of 2.66 percent from 2.49 percent.
"There's a little bit of relief on the risk side," said Gary Bartlett, managing director and chief investment officer at Aberdeen Asset Management in Philadelphia. "The stock market has been firmer for the last few days, coming a few steps back from the edge of the cliff."
News that Freddie Mac was taking steps to raise capital made investors willing to tolerate a bit more risk, said Georges Yared, chief investment officer of GameChanger Investing in Minneapolis. "Fannie and Freddie will survive so a bit of cash is moving out of Treasuries," he said.
Five-year notes traded 22/32 lower in price for a yield of 3.43 percent from 3.28 percent late on Thursday, while 30-year bonds fell 27/32 in price for a yield of 4.66 percent from 4.61 percent.
Long-bond prices have been hard hit this week as worries over the extent of the credit crisis have been supplanted with concerns over rising inflation, following data showing stronger-than-forecast price pressure on both the wholesale and consumer sides.
Minneapolis Federal Reserve President Gary Stern told Bloomberg on Friday that inflation was "clearly too high" and that the central bank can not wait until financial and housing markets stabilise before raising rates to fight price pressures. Thirty-year yields also posted their biggest weekly rise since mid-June.