Bonds Pare Losses as Stocks Take Tumble

U.S. Treasurys pared losses and the two-year Treasury note yield fell to a new five-year low as another sharp stock slide boosted the bid for safe-haven U.S. government debt.

The S&P 500 stock index broke below the low it set on Oct. 10 and stood at its lowest level since March 2003.

The fresh round of selling in stocks lifted Treasurys prices off their lows and sent two-year yields to 1.144 percent, a new five-year low.

Two-year notes, which were unchanged before the latest stock slide, rose 1/32, their yields easing to 1.14 percent from 1.17 percent late Wednesday. Benchmark 10-year Treasury notes rose 5/32 in price, their yields easing to 3.76 percent.

But the price of 30-year U.S. Treasury bonds extended losses after news of poor demand for a $10 billion reopening of a 30-year bond issue.

The price of the 30-year or "long" bond fell 2-7/32 to 103-10/32. Its yield, which moves opposite to price, was 4.30 percent, up from 4.17 percent late Wednesday.

The 30-year reopening was part of the Treasury Department's $55 billion November quarterly refunding.

The Treasury sold $25 billion of 3-year notes Monday and $20 billion of 10-year notes on Wednesday in the first two parts of the quarterly refinancing.

An indecisive stock market offered Treasurys little clear direction, but even when stocks weakened or erased gains, Treasurys had a hard time picking up steam.

"Treasurys have had a particularly strong run with the two-year testing the 2003 low yields and other issues farther out the curve testing more recent low yields," said John Canavan, analyst at Stone & McCarthy Research Associates.

"It's difficult to sustain a bid for Treasurys at this point without active safe-haven activity," he said.

The 30-year Treasury bond auction scheduled for the afternoon was restraining prices, Canavan said.

"And we're still trying to digest three- and 10-year supply from this week's prior refunding auctions," he added.

Treasuries prices had briefly firmed from narrowly lower levels when the government reported that new weekly jobless benefits claims rose more than expected to 516,000, the highest level since the weeks following Sept. 11, 2001.

Analysts said the weak economic outlook was likely to keep bond prices from falling much or yields, which move inversely to prices, from rising sharply. That's because investors are still willing to pay a premium for safety, especially when inflation -- which hurts the value of fixed-income securities -- is on the wane.

Five-year Treasury notes were unchanged, yielding 2.35 percent, while the 30-year bond fell 30/32, its yield rising to 4.23 percent from 4.17 percent Wednesday.

U.S. Treasury debt prices were mostly lower Thursday after early stock gains on Wall Street tempered the bid for safe-haven U.S. government debt.

Prices firmed briefly from narrowly lower levels when the government reported that new weekly jobless benefits claims rose more than expected to 516,000, the highest since the weeks following the Sept. 11, 2001 attacks on the United States.

Two-year notes, which were down 1/32 before the report, briefly erased that loss. When stocks opened higher, however, two-year notes slipped 2/32, their yields rising to 1.21 percent from 1.17 percent late Wednesday.

Benchmark 10-year Treasury notes fell 6/32 in price, their yields, which move inversely to price, rose to 3.76 percent from 3.65 percent Wednesday.

On Wall Street, the Dow and S&P 500 stock index were flat after Wal-Mart Stores beat earnings estimates but warned of problems going forward.

With two-year yields near four-year lows, some resistance to even lower yields had emerged, traders said.

But the weak economic outlook was likely to keep bond prices from falling much or yields from rising sharply, traders said.

That's because investors are still willing to pay a premium for safety, especially when inflation -- which hurts the value of fixed-income securities -- is on the wane.

Year-end pressures in the interbank lending market could also underpin the bid for U.S. government debt.

The interbank cost of borrowing three-month dollars inched higher on Thursday, breaking a 23-session downward move, according to the latest daily fixing from the British Bankers Association.

The spread is seen as a gauge of banks' willingness to lend to each other; a wider spread is seen as an indication of decreased willingness among banks to lend to each other.

At 1 p.m., the Treasury will sell $10 billion of reopened 30-year bonds as the last leg of its three-part $55 billion quarterly refunding.

The Treasury sold $25 billion of 3-year notes Monday and $20 billion of 10-year notes on Wednesday.

In morning trade, five-year Treasury notes fell 3/32 in price, their yields rising to 2.38 percent from 2.36 Wednesday, while the 30-year bond fell 23/32, its yield rising to 4.21 percent from 4.17 percent.

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