Treasury prices declined Thursday as the stock market extended a lively rebound into a second session.
Treasury prices were volatile throughout the session, alternating between fairly heavy gains and contained losses as the market adjusted to a sudden resumption of demand for stocks. Wall Street registered a considerable advance late in Wednesday's session.
The gains in the stock market were smaller Thursday but largely eclipsed buying interest in Treasurys. The stock and government bond market often trade in opposite directions, as investors alternate between favoring safe assets like Treasurys and opting for the higher potential returns of riskier stocks.
The 10-year benchmark note fell 10/32 to 104 30/32 with a yield of 3.64 percent, up from 3.60 percent late Wednesday. Prices and yields move in opposite directions.
The 30-year long bond dropped 24/32 to 110 19/32 with a yield of 4.35 percent, up from 4.32 percent late Wednesday.
The 2-year note fell 4/32 to 101 29/32 with a yield of 2.24 percent, up from 2.14 percent.
The yield on the 3-month note rose to 2.37 percent from 2.25 percent Wednesday as the discount rate advanced to 2.31 percent from 2.20 percent.
New calls by New York Insurance Superintendent Eric Dinallo and others for an orchestrated rescue of cash-strapped bond insurers also has diminished demand for Treasurys. Earlier in the year, the prospect of the insurers' problems wreaking havoc in the municipal bond market spurred demand for Treasurys and federal agency debt.
However, some analysts questioned the viability of such a rescue.
The plan "begs one important question: Given the size of the write-downs witnessed in the financial sector, who is going to provide the capital to banks?" said Kevin Giddis, managing director of fixed income trading at Morgan Keegan.
Earlier in the week there was robust demand for Treasurys that drove the 2-year yield down to its lowest level in almost four years and caused the 30-year yield for the first time to break below 4.15 percent, the yield's level when it debuted in 1977.
The rallies were the result of investor bets on the likelihood of a significant economic slowdown and further rate cuts by the Federal Reserve.
Investors often seek government-backed assets and stay away from risky investments when the economy softens, so Treasurys could register further price gains later in the week or early next week.
The Fed on Tuesday ordered an unusually large 0.75 percentage point rate cut and sent strong indications that it is willing to reduce rates again if necessary. The Fed is widely expected to put in another rate cut at its monetary policy meeting Tuesday and Wednesday. Many investors expect a 0.50 percentage point reduction.
The focus on the Fed has diminished interest in economic data for the time being. The Labor Department reported a slight decline in the number of people applying for jobless claims in the latest week, while the National Association of Realtors reported a 2.2 percent drop in existing home sales in December to 4.89 million. It was the smallest number of homes sold in nine years.