Treasury prices mostly extended their gains yesterday as investors sought the safety of government debt amid a big sell-off in stocks.
Stocks fell broadly on fresh concerns about weakness in the banking sector and the speed of a potential economic recovery. Those renewed concerns sent Treasurys higher, pushing their yields lower.
The Dow Jones industrial average fell 186 points, its biggest drop since Aug. 17.
"Treasury prices being up is more a reflection of inflation fears being calm and people not as confident in a recovery," said Mark Bonhard, an investment adviser at Dawson Wealth management in Cleveland. "While we may have seen a bottom in the
recession, I don't think we'll see a quick turnaround."
In late trading, the 10-year note rose 10/32 to 102 6/32, while its yield fell to 3.36 percent from 3.40 percent late Monday.
Analysts have said there are long-term worries about potential inflation as the supply of government debt mounts because of unprecedented spending to stimulate the economy. However, those concerns appear to have been set aside as recent Treasury auctions have been well received.
Traders were moving into riskier stocks throughout the summer in hopes that an economic recovery was emerging. Renewed caution and uncertainty about that rebound, though, had traders reversing course Tuesday. The Standard & Poor's 500 index fell 1.9 percent in afternoon trading.
The two-year note rose 4/32 to 100 5/32. Its yield fell to 0.91 percent from 0.98 percent.
The 30-year bond went against the trend of shorter-term Treasurys as its price fell 8/32 to 105 7/32. Its yield inched higher to 4.19 percent from 4.18 percent.
The yield on the three-month T-bill fell to 0.12 percent from 0.13 percent. Its discount rate was 0.13 percent.
The cost of borrowing between banks fell. The British Bankers' Association said the rate on three-month loans in dollars — the London Interbank Offered Rate, or Libor — declined to 0.33 percent from 0.35 percent.
