MW: Treasurys drop as U.S. injects cash into banks
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasurys dropped Tuesday, sending yields up the most in two weeks, as the Treasury Department is expected to inject about $250 billion directly into U.S. financial institutions in the latest effort to ease the credit crunch.
Two-year note yields rose 5 basis points, or 0.25% to 1.87%, the biggest increase since September 29.
Benchmark 10-year note yields increased 3 basis points to 4.02%, the highest since Aug. 6. Yields move inversely to prices.
President George W. Bush said Tuesday that the Federal Deposit Insurance Corp. will insure most new debt issued by banks in order to get interbank lending restarted. See full story.
The Federal Reserve also said it will start buying commercial paper on Oct. 27 to unfreeze that market.
"The U.S. authorities have apparently had all the fun that they can stand in this credit downturn as they unleash the public wallet on the global financial markets," said William O'Donnell, U.S. government bond strategist at UBS Securities. "The Treasury market is suddenly an unfashionable place to be as the world's stock markets rebound smartly."
The Dow Jones Industrial Average rose the most on record Monday, when bond markets were closed in observance of Columbus Day, as global central banks announced similar measures.
U.S. equities opened higher today, reducing investors' desire for the safe-haven of government debt.
Libor improves
Banks also indicated more willing ness to lend to one another, lowering benchmark rates for borrowing by companies, home-buyers and consumers.
The London interbank offered rate, known as Libor, for three-month dollar loans fell to 4.635% from 4.725% on Monday, while the one-month rate declined to 4.46875% from 4.56%.
Trading in fed funds futures show traders see a 50% chance the central bank will lower its target borrowing cost by another half percentage point to 1% on Oct. 29. Those odds were 64% on Friday.
