Bonds sink as market struggles to absorb supply
NEW YORK — Treasury prices tumbled Friday, extending losses touched off the previous day by a disappointing auction of 30-year bonds.
In late trading, the 30-year bond dropped 2 8/32 to 104 22/32, its biggest one-day drop since June. Its yield jumped to 4.22 percent from 4.09 percent late Thursday.
The yield on the benchmark 10-year Treasury, which is closely tied to interest rates on mortgages and other consumer loans, rose to 3.38 percent from 3.25 percent, as its price fell 1 2/32 to 102.
The sharp sell-off came as investors struggled to absorb $71 billion of new debt issued by the government this week. Auctions of three-year and 10-year notes were met with decent demand, but fewer bidders showed up for an auction of 30-year bonds on Thursday.
“This is the kind of thing that happens when the market is forced with too much supply,” said Tom di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC, a brokerage for institutional investors.
Adding to the bond market’s worries were comments from Federal Reserve Chairman Ben Bernanke late Thursday that the U.S. central bank is prepared to act quickly to scale back its massive stimulus measures when necessary. Though Bernanke stressed that the Fed has no intention of raising interest rates any time soon, the market interpreted his comments to mean that an interest rate hike, when it happens, will be large and swift.
“There is some chatter that Bernanke had indicated that if he does inch up the rate, it won’t be incremental,” di Galoma said.
Higher stock prices didn’t help the case for Treasurys either. Stocks rose moderately Friday, putting in their best weekly performance since July. Demand for the safety of government debt tends to wane when stocks rise.
In other trading, the two-year note fell 4/32 to 100 2/32 and its yield rose to 0.97 percent from 0.89 percent.
The yield on the three-month T-bill held steady at 0.06 percent. Its discount rate was 0.7 percent.
The cost of borrowing between banks was unchanged. The British Bankers’ Association said the rate on three-month loans in dollars — the London Interbank Offered Rate, or Libor — was flat at 0.28 percent.
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