Treasurys rise amid Fed purchases, drop in stocks

NEW YORK — Long-term Treasury yields retreated Tuesday as the Federal Reserve bought up $6.45 billion in government bonds and a sell-off in stocks extended into a second day.

The Fed has been buying large amounts of Treasurys and other kinds of government debt this year in effort to keep borrowing rates low, but some of its recent purchases seemed to have little effect on the market. Analysts said the purchases had more impact on Tuesday since there were no new issues of debt this week in Treasury auctions.

The yield on the 10-year Treasury note — which is closely tied to rates for home mortgages and other kinds of loans — fell to 3.65 percent from 3.72 percent late Monday as its price rose 16/32 to 95 21/32.

Prices of other bonds also rose, pushing their yields lower, as stocks tumbled for a second straight day, sending investors in search of safety. The Dow Jones industrial average lost 107 points.

John Spinello, bond strategist at Jefferies & Co., said Treasurys likely pushed higher in anticipation of more selling of stocks to come. Many believe stocks are ripe for a pullback following a 35 percent spike in since early March.

Bond yields have been rising steadily since the beginning of the year as investors worried that the flood of new government debt would overwhelm demand. However the market has bounced back in recent days after several key auctions of Treasury debt with strong interest from buyers.

Investors have been looking for signs that might indicate whether the Fed may step up its purchases of government debt to keep yields from climbing. Higher yields are worrisome for investors because they could crimp an economic recovery by discouraging buying.

Inflation fears have escalated in recent weeks as the dollar weakens, sending commodity prices and yields on Treasurys higher. Last week, the yield on the 10-year Treasury spiked to 4.01 percent — its highest level since last October. Forecasts of rising inflation make bonds unattractive, because inflation eats into bonds’ fixed returns over time.

The yield on the 30-year bond fell to 4.47 percent from 4.57 percent late Monday as its price rose 1 15/32 to 96 14/32.

The two-year note’s yield fell to 1.19 percent from 1.23 percent, as its price rose 3/32 to 99 13/32. The yield on the three-month Treasury bill rose to 0.16 percent from 0.15 percent. Its discount rate was 0.17 percent.

The cost of three-month dollar loans between banks held steady at an all-time low. The British Bankers’ Association said the rate on three-month loans in dollars — known as the London Interbank Offered Rate, or Libor — was unchanged at 0.61 percent.