Treasurys dropped Friday, pushing yields higher as investors shunned government debt and turned their attention to stocks as the market seemed to endorse the latest moves to shore up Bank of America and Citigroup.
Ten-year note yields ) increased 14 basis points, or 0.14%, to 2.35%. It's the biggest increase since Jan. 2.
Two-year note yields rose 2 basis points to 0.75%.
The U.S. government announced it was injecting $20 billion into Bank of America . Treasury is also guaranteeing losses on more than $400 billion in assets belonging to both Bank of America and Citigroup. See Bank of America story.
Citigroup, meanwhile, unveiled a plan to reorganize its business units by separating the bank's core lending operations from the mortgage-related assets that have caused billions of dollars of write-downs and losses. See Citigroup story.
U.S. equities pointed higher, easing investors' interest in the relative safety of government debt.
"U.S. government backstops, stimulus packages and presidential inauguration optimism are helping offset the gloom emerging from the raw data, translating into stabilized equities," said Ashraf Laidi, chief market strategist at CMC Markets.
FDIC boost
Also pressuring U.S. debt, the Federal Deposit Insurance Corp said banks and other approved financial institutions could sell debt with its guarantee maturing in up to 10 years, instead of the three-year cap previously.
The Temporary Liquidity Guarantee Program has been popular and successful so far, helping banks issue about $120 billion since late November at rates far below what they'd have to pay in the still mostly-frozen corporate bond market. The program offers financing with the full faith and credit of the United States, paid for by a fee to FDIC, with the intent to enable banks to lend more and at better rates to consumers and businesses.
"We might have a lot of five-year and 10-year supply" that will compete with Treasurys, said Ira Jersey, an interest-rate strategist at Credit Suisse. "It's not surprising that they are trying to come up with other ways to keep banks funding costs down at reasonable levels."
Right now, banks' 10-year bonds based on their own credit are trading at yields around 7%, he said. By comparison, though a much shorter maturity, FDIC-backed three-year bonds sold in the last couple months are trading around 1.8%.
Economic news
Bonds stayed lower after the Labor Department said inflation fell 0.7% in December, marking the smallest annual gain in 54 years. Economists surveyed by MarketWatch expected the consumer price index to drop 0.8% last month. See CPI story.
Core prices, excluding energy and food, were flat, matching expectations.
Consumer sentiment unexpectedly improved in early January to a reading of 61.9 from 60.1 in late December, according to a media report of a survey released Friday by the University of Michigan and Reuters. Analysts polled by MarketWatch were looking for a January result of 59.
The Securities Industry and Financial Markets Association recommended that bond trading end at 2 p.m. Eastern and remain shuttered on Monday for Martin Luther King Jr. Day.
