Dismay over widening fissures in the European bailout plan sent investors fleeing stocks and into the relative safety of U.S. Treasurys Tuesday.
At their lows, yields Tuesday touched levels last seen in early October. The 10-year was yielding 1.98 percent in mid afternoon trading, after sliding to 1.95 percent earlier. The 30-year was at 2.99 in afternoon trading.
"I don't think people really want these securities. They're owning them because they're scared," said Kevin Ferry of Cronus Futures Management.
Risk assets sold off and Treasury prices rose as investors continued to react to Monday's announcement that Greek Prime Minister George Papandreou plans to put the Greek bailout plan to a public referendum. The Dow was down more than 300 points at its low point of the day, and it was trading down nearly 2 percent in late afternoon trading.
News headlines had a tight grip on markets, and some of them were attributed to unnamed sources. One report quoted a Socialist Party official saying there would be no referendum vote. "We think the probabilities of them getting to a January referendum as pretty low," said Robert Sinche, head of global currency strategy at RBS. "The first thing will be the vote of confidence Friday." Papandreou has been losing support and the vote Friday is expected to be extremely close.
Financial stocks, the very nerve center of the stock market, were down close to 4 percent on worries about Europe but also the continued fall out from the MF Global bankruptcy and fears about counterparty risk.
The CME Group said that MF had failed to keep client funds separate form its own funds, and the Associated Press quoted a federal official saying an MF executive admitted to using clients money as the firms financial troubles escalated. By late Tuesday, MF Global said it had accounted for all client money, $700 million of which had been missing.
David Ader, chief Treasury strategist at CRT Capital, said fears about Europe were the key drivers of Treasurys and the big move really started Monday. "Yesterday was more about indications that this is not all its cracked up to be," said Ader of the bailout plan agreed by European leaders last week. While details were sketchy, the plan would pump up the European Financial Stability Facility bailout fund. It would also allow for losses of 50 percent for Greek debt holders.
"I think it will be easier for markets to shrug off relatively good news and be more affected by overseas," Ader said. He noted that Tuesday's ISM manufacturing data, while lower on the headline, was actually more positive than it seemed because orders were up and inventories lower.
He expects to see the 10-year yield to stay in the 1.85 to 2.40 percent range.
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