Treasury prices post sharp rally

Treasury prices post sharp rally

	Published : Tue, 27 Feb 2007 23:41 By : Agencies Print this Story

NEW YORK (AP) - Treasury bond prices staged a sharp rally Tuesday as investors, rattled by a plunge in stock prices and continued concerns over the U.S. subprime mortgage market, sought a safe haven in government bonds.

At 5 p.m. EST, the 10-year Treasury note was up $9.06 per $1,000 in face value, or 29/32 point, from its level at 5 p.m. Monday. Its yield, which moves in the opposite direction, fell to 4.52 percent from 4.63 percent.

The 30-year bond rose 1 16/32 point. Its yield fell to 4.64 percent from 4.73 percent.

The 2-year note rose 10/32 point. Its yield fell to 4.59 percent from 4.76 percent.

Yields on 3-month Treasury bills were 5.12 percent as the discount rate fell 0.05 percentage point to 4.99 percent.

The hefty gains came as a wave of risk aversion swept across asset markets Tuesday, and took the 10-year note to a yield of 4.47 percent, a level last hit in mid-December.

Much weaker-than-expected durable goods data early Tuesday served as 'a catalyst' for all markets, said George Goncalves, Treasury bond trading strategist, as it was 'one of the first signs of spillover from housing to production.'

That, along with a massive sell-off in global equities -- the Dow Jones Industrial Average posted its biggest intraday drop in more than five years -- and continued concerns over rising delinquencies in the subprime mortgage market, caused Treasury prices to spike.

'We have had a major move (in equity markets) and a flight to quality is to be expected when you have moves of that magnitude,' Goncalves said.

Dominic Konstam, head of interest rate strategy at Credit Suisse in New York, said that Tuesday's shift in markets was more of a 'massive unwind' of risky bets, though, rather than 'necessarily predicting recession.'

One sign of markets' volatility was the dollar's sharp drop against the yen, which sent the U.S. currency below 118.00 yen, marking its biggest decline in at least 9 months, as investors unwound carry trade bets. Carry trade is a popular strategy in which investors borrow in currencies with low interest rates, such as the yen, and buy higher-yielding assets.

Tuesday's volatility left almost no market unscathed.

While markets seemed to slip into panic mode by Tuesday afternoon, some analysts advised keeping calm.

'People are not used to this. We have had incredibly stable markets in the last year. This feels like an unbelievable day, but in historical context we have had bigger days,' said Ethan Harris, chief U.S. economist with Lehman Brothers.