Treasury debt prices plunged Tuesday as plans by financial companies to raise capital were taken as a possible sign the worst of the credit crisis might be over, sapping any safe-haven bid for bonds.
Bonds extended their losses after an index of national factory activity for March turned out to be not as weak as expected, which also bolstered some expectations on the current state of the economy.
Wall Street soared Tuesday, led by financial shares after Lehman Brothers said it would offer $4 billion worth of convertible preferred stock. UBS also said it would write down an additional $19 billion in ailing assets, but that it would also seek emergency capital by issuing shares.
The writedowns, along with the efforts to raise capital, were taken by investors as a push for more realistic repricing of some ailing assets and as freeing up hard-to-access capital.
Stocks were also supported, and bonds weakened, by relief that the first quarter ended Monday without more financial companies being decimated by a need for capital.
"We made it through quarter end last night and that relieves some of the stress on the system," said Matthew Moore, economic strategist at Banc of America Securities in New York.
"We are seeing equities performance on capital-raising activities by some of the financials and then we got some positive economic data with The Institute for Supply Management (ISM) exceeding expectations," Moore said, adding "really it has been a positive day for equities and a negative day for Treasurys."
Benchmark 10-year Treasury notes were trading 1-2/32 lower in price for a yield of 3.55 percent against 3.42 percent late Monday, while 2-year notes were 10/32 lower in price for a yield of 1.77 percent from 1.60 percent.
"The highlight is not the UBS writedown of $19 billion but the raising of $15 billion in new capital -- this is on top of the ($4 billion) Lehman announced," said Andrew Brenner, senior vice president of MF Global in New York, adding "bonds are getting crushed and financials are flying."
The ISM's index of national factory activity for Marchcame in at 48.6, above analysts' expectations for a reading of 47.5 and above February's 48.3, though still below 50 which separates growth from contraction.
Data also showed construction spending fell by less than expected in February, although it remained at its lowest annual rate since June 2005.
Five-year notes were trading 28/32 lower in price for a yield of 2.64 percent from 2.45 percent late Monday, while the 30-year bond was 1-14/32 lower in price for a yield of 4.39 percent from 4.30 percent.