U.S. Treasurys rose on Wednesday after Standard & Poor's offered a grim assessment of bond insurers, reviving the credit concerns that have kept government bonds well bid for several months.
S&P cut ACA Financial Guaranty to junk status, and warned that the AAA rating of larger bond insurers that underpins so many fixed-income investments could come under pressure.
The news sent stocks lower and pushed benchmark 10-year notes 5/32 higher for a yield of 4.10 percent, down two basis points from Tuesday.
"This pop in Treasurys is due to the ACA downgrade from A to CCC," said Andrew Brenner, market analyst at MF Global. "Stocks are acting accordingly."
Investors had a mixed reaction to the Federal Reserve's inaugural offering of emergency loans for ailing money markets.
Wall Street was hardly convinced that the near-term liquidity boost of $20 billion would completely cure what ails credit markets, but many were relieved to see proactive steps by global central banks to stem the crisis.
The auction results were inconclusive. Bids outnumbered the amount on offer by three times, well below some estimates. The stop-out rate of 4.65 percent, below the discount rate at which the Fed normally lends to banks, suggested decent though not overwhelming interest.
Beyond that, analysts say it is hard to determine whether demand is a sign of interest or desperation.
"It's not a bombshell for financial markets," said Ron Simpson, director of research at Action Economics, describing the results as "not bad news, not good news."
Many remained suspicious that measures like the Fed's auction and the European Central Bank's massive half trillion dollar injection of cash into the financial system earlier in the week, would convinced banks to begin lending again.
"It's the caution on lending that's problematic," said Alan Ruskin, chief international strategist at RBS Greenwich. "In a sense liquidity doesn't change that."