Shorter-dated US Treasury prices rose on Tuesday as growing anxiety about the global banking system's fragility pushed financial stocks down and sent investors scurrying for the comparative shelter of government debt. But long bond prices dropped on growing concerns about an avalanche of upcoming government debt issuance to fund economic rescue plans, as President Barack Obama took office.
"Treasuries are coming back because of the stock market," said David Coard, head of fixed-income sales and trading at The Williams Capital Group in New York. The 2-year Treasury note's price rose 1/32 for a yield of 0.71 percent, versus 0.73 percent late Friday. The US bond market was closed on Monday for a public holiday observing the birthday of slain civil rights leader, Martin Luther King, Jr.
However, "the Treasury market is still very concerned about the impact of the supply that we are likely to have as a result of having to bail out the financial markets," Coard said. "That (concern) is showing up more at the long end than the short end at this point." The 30-year Treasury bond fell 1-4/32 in price for a yield of 2.96 percent, versus 2.92 percent late Friday.
The benchmark 10-year Treasury note's price, which moves inversely to its yield, slipped 10/32 for a yield of 2.37 percent, up from 2.34 percent late Friday. That's more than 30 basis points above the five-decade low yield of 2.04 percent that the 10-year note hit on December 18. Turmoil in UK and US financial institutions highlighted the fragility of the global financial system and punished bank stocks.
The S&P Financial Index fell 16.7 percent and hit a 14-year low. But the financial sector's woes also underscored the need for governments to issue more debt to backstop struggling institutions, with issuance prospects contributing to pressure on longer-dated Treasuries, analysts said.
"As national governments step up to issue debt, they are going to be hard pressed to find buyers," said T.J. Marta, fixed-income strategist with RBC Capital Markets in New York. "I would emphasise the fears about issuance," Marta added. The buying of corporate bonds as that market continues to recover from extremely weak price levels hit late last year is also contributing to pressure on government debt, analysts said.
As Obama was sworn in as US president, the inauguration served to remind bond investors of his economic stimulus plans and underscored the Treasury market's supply worries, analysts said. "Treasuries are down because of concern about how big the stimulus plan is going to be," said David Dietze, chief investment strategist at Point View Financial Services in Summit, New Jersey.