U.S. Treasury prices slipped Friday as a rebounding stock market diminished investors' appetite for safe-haven U.S. government debt.
U.S. stocks climbed as the kickoff to the holiday shopping season lifted retail stocks. Signs of progress in a plan to relieve credit market strain also helped major banking stocks.
"The Treasury market is waxing and waning on the flight-to-quality bid and that eased up a little bit today because we saw a modicum of calm in the equity markets," said Josh Stiles, senior bond strategist at IDEAglobal in New York.
Treasurys with maturities ranging from two to five years appeared to come under the most pressure, perhaps as traders positioned themselves for upcoming supply.
The Treasury will sell two- and five-year notes in the coming week, Stiles noted.
An early 1 p.m. close for stock trading was expected to quiet already subdued trading in U.S. Treasuries.
Trading in Treasurys and other U.S. dollar-denominated fixed-income securities will end early at 2 p.m.
"Stocks rebounding caused bonds to sell off and the yield curve to steepen," said Andrew Brenner of MF Global. The spread between two- and 10-year note yields widened to 106 basis points from 100 basis points Wednesday.
Markets were closed on Thursday for the Thanksgiving holiday.
Talk about the certainty of expectations for a 25-basis-point rate cut by the Federal Reserve, with a chance of a half percentage-point rate cut in December, also contributed to the bounce in equity prices and the sell-off inbonds, Brenner said.
At noon, two-year note yields rose to 3.09 percent from 3.01 percent late Wednesday, while the price of the two-year note fell 4/32.
The benchmark 10-year note yielded 4.03 percent, up from 4.01 percent in late trade Wednesday. Its price fell 4/32. Bond prices and yields move inversely.
While the improved tone in U.S. equities weighed on Treasurys prices, analysts said the downside for those instruments could be limited by persistent worries about credit availability.
Those worries were reflected in the rise of London interbank offered rates for two-month euro deposits to 6-1/2 year highs Friday. Three-month euro rates had their biggest weekly rise since mid-August amid concern over banks' year-end funding aggravated by the general credit crunch.
Shrinkage in the asset-backed commercial paper market is forcing banks to turn to Libor-based funding, while supply of period funding is lower as banks cling to cash as a contingency against credit-related losses.
"You can get some back up [in Treasury prices] related to new supply or calmer stock market conditions, but credit concerns will still provide good support for Treasurys," Stiles said.
Trading was light Friday. Japanese markets were closed for a holiday, and many bond traders extended Thursday's Thanksgiving Day holiday through the weekend.