Long-term bond yields fell again on today as investors returned to the Treasury market for the second day running.
It was another encouraging sign for the bond market following a harrowing dropoff earlier in the week. The yield on the 10-year Treasury note had soared to its highest level in six months on Wednesday, sending the stock market reeling.
Investors had worried that higher long-term borrowing costs could threaten the economy by slowing down purchases of homes and cars, whose loan rates are linked to bond yields.
Long-term yields fell again Friday as investors came back to buying Treasurys, partly on relief that the government's latest auction of 7-year notes on Thursday went well. The market had worried that a huge wave of new debt issues from the government would swamp demand.
Some portfolio managers were topping up their holdings of Treasurys on the last trading day of the month, and buyers were also encouraged by hopes that the
Federal Reserve would increase its purchases of Treasurys. The Fed has been buying Treasurys and other kinds of debt in an effort to spur the economy by keeping borrowing costs low.
In early afternoon trading, the benchmark 10-year Treasury note rose 22/32 to 96 21/32, pushing its yield down to 3.53 percent from 3.62 percent late Thursday. The 30-year bond rose 1 3/32 to 97 7/32, sending its yield down to 4.42 percent from 4.49 percent.
On Wednesday, the yield on the 10-year note hit a six-month high of 3.75 percent, stoking concerns about consumers' ability to borrow and refinance their mortgages.
A prolonged spike in bond yields could undermine the government's efforts to get the economy going again as well as increase its own borrowing costs. It could also crimp a key business for banks by slowing down a wave of mortgage refinancing, as already appears to be happening.
Some of the bond market's jitters eased on Thursday as its latest note auction was met with ample demand. The Treasury Department auctioned off a total of $101 billion in debt this week.
"The market right now is very supply-demand oriented," said John Spinello, bond strategist at Jefferies & Co. With no auctions planned and the Fed expected to buy up government debt next week, the market should hold up for the time being, Spinello said.
"We have a market that is comfortable right now with the fact that there is no supply and people are buying," he said.
The two-year note inched up 2/32 to 99 28/32. Its yield slipped to 0.94 percent from 0.98 percent.
The yield on the three-month Treasury bill was unchanged at 0.13 percent.
The cost of borrowing between banks dipped back down to an all-time record low achieved earlier in the week. The British Bankers' Association said the rate on three-month loans in dollars — known as the London Interbank Offered Rate, or Libor — fell 0.01 percentage to 0.66 percent. The rate has been on a steady decline for most of the past month on optimism that the worst of the
recession has passed.
