Enter multiple symbols separated by commas

Short-term Bonds Gain as Stimulus Plan Panned

Short-dated U.S. government bonds rose Friday as stocks turned negative on investor fears a White House stimulus package might not keep the economy from sliding into recession.

President Bush called for an economic stimulus package of around $140 billion. For plunging equity markets, that was not enough, and they reacted by capping a brutal week with yet another bout of selling.

This allowed two-year notes to climb as much as 4/32 in price, pushing its yield to a new three-year low of 2.33 percent.

"It is probably going to be too little and too late," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co. in Seattle, of the joint initiative between Bush and Congress.

Data on consumer sentiment showed a modest uptick, but to levels that were still consistent with a sharp slowing in the economy.

The focus for financial markets was on beleaguered stocks, with the S&P 500 down over 5 percent this week, and on track for its worst weekly performance in 5-1/2 years. The index was down 0.86 percent on Friday alone.

Longer-dated bonds sold off a bit on profit-taking, however, with 30-year notes down 14/32 and yielding 4.32 percent, up two basis points.

An index of leading indicators fell 0.2 percent, more than expected and consistent with other figures pointing to a notable retrenchment in economic activity.

This trend has fueled a six-month tear in the bond market as investors price in both a recession and aggressive interest rate cutting by the Federal Reserve.

The markets are now looking for at least a half percentage point easing at the Fed's late January meeting, which would bring the fed funds rate to 3.75 percent.

Contact Bonds


    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.