Treasurys Plunge as Stock Strength Tops Safety Bid

U.S. Treasury debt prices fell on Tuesday as Wall Street stocks rose, dimming government bonds' safe-haven appeal.

Continued signs of an incipient thaw in interbank lending markets, struggling with the biggest lending freeze in many decades, and the prospect of hefty Treasury note issuance also weighed on government securities prices, analysts said.

The benchmark 10-year Treasury note's price, which moves inversely to its yield, fell 20/32 for a yield of 3.76 percent, versus 3.68 percent late Monday.

"Treasury market participants are bracing for an onslaught of new product," said David Dietze, chief investment strategist at Point View Financial Services in Summit, N.J.

"The other thing that traders are looking at here is a reversal of stock declines," he said.

Rising stocks drew away some flows from safer assets such as government securities.

But Treasury prices pared some losses after a report showed that U.S. consumer confidence sagged to a record low as the biggest financial crisis since the 1930s slashed investors' stock market wealth and continued to erode the already crumbling housing market.

The Conference Board, a private business research group, reported that its U.S. consumer confidence index fell to an all-time low in October to 38.0 from an upwardly revised 61.4 in September.

"It appears that consumer confidence was good for Treasurys, but the problem for Treasurys is there is an enormous amount of supply coming that is offsetting the economic news that is friendly (to government bonds): house prices which continue to come down and this incredibly low consumer confidence number," said David Coard, head of fixed-income sales and trading at The Williams Capital Group in New York.

The Treasury Department plans to sell $34 billion of two-year notes later on Tuesday, an issue that matches the record 2-year auction in September -- a prospect that was weighing on shorter-dated maturities.

The 2-year Treasury note's price was down 3/32 for a yield of 1.58 percent, versus 1.53 percent late Monday.

However, the Federal Reserve, which starts a two-day policy setting meeting Tuesday, is expected to announce on Wednesday a rate cut of at least 50 basis points in the current 1.5 percent target rate. Interest rate cuts tend to boost prices of short-dated paper such as the 2-year note.

The 30-year Treasury bond fell 28/32 in price for a yield of 4.10 percent, versus 4.05 percent late Monday.

Dismal housing data on Tuesday according to the Standard & Poor's/Case-Shiller Home Price Indices underscored the ongoing slide of U.S. home prices.

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