By V. Phani Kumar, MarketWatch
NEW YORK (MarketWatch) — U.S. Treasury prices surrendered early gains to decline Friday as news that a European Central Bank Governing Council member will step down heightened worries about the region and pushed investors toward safer assets.
Treasurys led by the longer-term securities had risen earlier in the day, lifting yields that move inversely to prices, as investors looked forward to next week’s auction of $66 billion in debt.
But they turned lower as U.S. stocks tumbled at the opening and the greenback climbed, following a Reuters report that ECB Governing Council member Juergen Stark would leave his position amid differences over the central bank’s bond purchases. Read more about Stark’s resignation.
Yields on the benchmark 10-year note 10_YEAR -0.66% dropped to 1.96%, two basis points lower from 1.98% late on Thursday and off the 2% return offered earlier in the day. A basis point is 1/100th of a percentage point.
The 5-year security’s 5_YEAR -2.20% yield was down at 0.84%.
“The 5 yr note yield is converging on the intra-day low of 81 basis points from Monday night, following the Euro stock market implosion, which is recurring today after a fairly stable market this morning,” Richard Gilhooly at TD Securities wrote to clients in a report.
In addition to news regarding Stark’s resignation, steep losses on Europe’s major stocks markets amid worries over Greece also pulled investors away from risk assets. Read about European stocks.
U.S. stocks were sharply lower in the first hour of regular trading, with the Dow Jones Industrial Average DJIA -1.19% sliding 1.7% and the S&P 500 SPX -0.95% shedding 1.5%. Read about U.S. stocks.
Treasuries weren’t much affected by President Barack Obama’s announcement late Thursday of a $447 billion plan to create jobs by offering a package of tax cuts and other incentives to provide a jolt to the U.S. economy. Read full story on Obama’s proposal.
The Obama plan “appeared to be little more than a speed bump for the markets, which remain completely focused on developments out of Europe and the upcoming Federal Open Markets Committee meeting,” strategists at the Royal Bank of Scotland wrote to clients.
Meanwhile, the U.S. dollar index DXY +0.91% , a measure of the greenback’s performance against six widely traded rival currencies, jumped 0.9% to 76.953, while dragging the euro sharply lower. Read about currencies.
Among other Treasurys, the 30-year bond 30_YEAR -0.06% yield gave up gains to trade at 3.31%. On the shorter-end, the 2-year note 2_YEAR -4.06% yield slipped one basis point to 0.18%.
