Treasurys slid in a shortened, pre-holiday session, as easier credit conditions and news that Merrill Lynch had raised billions of dollars in a private placement pushed stocks up, drawing investors away from safe-haven U.S. government debt.
U.S. stocks opened higher Monday, lifted by news Merrill Lynch planned to sell a lending unit and it had raised up to $6.2 billion in a private placement with Temasek Holdings and Davis Selected Advisors.
The Dow Jones industrial average was up 87.87 points, or 0.65 percent, at 13,538.
Easing credit conditions in the interbank lending markets also depleted the bid for U.S. government debt, a safe-haven when the gears of financial markets go awry.
"LIBOR continues to grind lower and the coordinated liquidity injections by the major central banks of the world appear to have helped," said David Ader, U.S. government bond strategist at RBS Greenwich Capital in Greenwich, Conn.
Ten-year benchmark notes fell 9/32 in price, their yields rising to 4.21 percent from 4.17 percent on Friday.
Two-year notes fell 2/32, their yields rising to 3.22 percent from 3.19 percent late Friday. Yields move in the opposite direction of prices.
Overseas, short-term lending rates for euros, sterling and dollars all eased Monday, reflecting less demand from banks for cash to cover their financing requirements for the year-end period. Three-month sterling rates fell to their lowest since Aug. 2, before the extent of the crisis in credit markets became apparent.
"The Federal Reserve's announcement on Friday that it will keep coming with the Term Auction Facilities until they're no longer needed is going to alleviate some of the credit issues," said Andrew Brenner, analyst at MF Global in New York.
The Fed said Friday that it planned to conduct Term Auction Facility tenders every other week "for as long as necessary to address elevated pressures in short-term funding markets."
The liquidity injections, which last week saw the Fed, the European Central Bank and three other major institutions coordinate action, are intended to restore confidence in financial markets and grease the interbank lending market.
No economic data will be released today and the Securities Industry and Financial Markets Association has recommended an early 2 p.m. close for trading of Treasurys and dollar-denominated mortgage- and asset-backed securities.
Trade will also close early in U.S. dollar-denominated over-the-counter investment-grade and high-yield corporate bonds, municipal bonds and secondary money market trading in bankers' acceptances, commercial paper and Yankee and Euro certificates of deposit.
U.S. stock trading will end at 1 p.m.
The U.S. Treasury Department will sell $22 billion of two-year notes Wednesday and $13 billion of five-year notes Thursday.