RTRS: TREASURIES-Bonds up in safe-haven bidding after Fed rate cut
*Bonds climb in safe-haven buying after Fed rate cut
*U.S. stocks start lower as credit worries weigh
*Treasury curve steepest in over four years
By Chris Reese
NEW YORK, Oct 8 (Reuters) - U.S. Treasury debt prices climbed on Wednesday, with safe-haven bidding returning as the stock market opened weaker and after an aggressive emergency rate cut from the Federal Reserve.
The Fed moved in concert with global central banks, cutting the recommended federal funds rate by 50 basis points to 1.50 percent. The move was not seen as a cure-all for the financial system's ills however, and investors resumed their hunt for lower-risk assets.
"There is still an awful lot of fear in the markets in general, in the credit markets and still a lot of worry over the financial system, which is sustaining a flight-to-quality into Treasuries," said Kim Rupert, managing director of global fixed income analysis with Action Economics LLC in San Francisco.
Two-year Treasury notes , considered to be the most sensitive to changes in Fed policy, were trading 8/32 higher in price for a yield of 1.35 percent from 1.47 percent late on Tuesday. Benchmark 10-year U.S. Treasury notes were trading 25/32 higher in price for a yield of 3.41 percent from 3.51 percent.
Buying was acute on the short-end of the curve, as shorter-dated government debt is considered a very low-risk asset and nearly as safe as cash. The buying pushed Treasury bill yields lower, with the U.S. 3-month Treasury bill yields falling to near 0.50 percent from 0.70 percent late on Tuesday.
The move pushed the Treasury yield curve to its steepest in over four years, with the spread between yields on 2-year notes and 10-year notes widening to 209 basis points.
Despite the emergency rate cut on Wednesday morning, the dire state of the financial system had investors boosting expectations the Fed will again cut interest rates at a policy meeting scheduled for later this month. Fed funds futures on Wednesday morning implied a 92 percent chance of a further 25 basis point cut at the October meeting.
Although the Fed cut rates, "nothing has changed in terms of the state of the economy," said David Ader, head of government bond strategy at RBS Greenwich Capital in Greenwich, Connecticut.
The five-year Treasury note gained 18/32 in price for a yield of 2.35 percent from 2.46 percent late on Tuesday while the 30-year bond was 2-15/32 higher in price for a yield of 3.90 from 4.04 percent. (Additional reporting by John Parry; Editing by Chizu Nomiyama)
