Treasury Prices Rise As Wall Street Banks Rekindle Credit Market Worries

NEW YORK (AP) -- Treasury prices rose Wednesday as a rise in worrisome assets at major Wall Street investment banks and a slow start to the first-quarter earnings season drew investors to the safety of government bonds.

Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc. said Wednesday that difficult to value assets known as Level 3 assets increased in the first quarter compared to the previous quarter. Meanwhile, United Parcel Service Inc. reduced its first-quarter earnings forecast, citing rising fuel costs, a flagging economy and falling domestic shipments.

Wednesday's reports bolstered the idea that the credit markets remain tight and the economy continues to slow, which persuaded investors to put more money into Treasurys.

The benchmark 10-year Treasury note rose 22/32 to 100 7/32 with a yield of 3.47 percent, down from 3.56 percent late Tuesday, according to BGCantor Market Data. Prices and yields move in opposite directions.

The 30-year long bond rose 1 4/32 to 101 1/32 with a yield of 4.31 percent, down from 4.38 percent.

The 2-year note rose 7/32 to 99 31/32 with a yield of 1.77 percent, down from 1.88 percent.

The three-month Treasury bill yielded 1.07 percent, down from 1.39 percent late Tuesday, and the discount rate was at 1.29 percent, down from 1.37 percent.

In after-hours trading, Treasurys moved very little. By 5 p.m. EDT, the 2-year yield was at 1.77 percent, the 10-year yield was at 3.48 percent, and the 30-year yield was at 4.32 percent.

Trading in Treasurys in recent weeks has been "kind of all over the place," said T.J. Marta, fixed-income analyst at RBC Capital Markets. He said the economic fundamentals would argue for even lower rates in short-term notes, "but there are so many cross-currents going on in the market right now."

One big factor behind the erratic trading has been the Federal Reserve's issuance of hundreds of billions of dollars worth of Treasury notes to banks and other borrowers in return for other types of debt. The Fed's aim is to keep money flowing freely through the financial system, but the effect on the Treasury market has been more pressure than there would normally be on short-term Treasury prices during times of economic weakness.

However, "as data deteriorates between now and early July, which is our outlook, it's going to be hard for the 2-year yield to move higher," Marta said.

On Tuesday, short-term Treasury prices rose after minutes from the most recent Federal Reserve meeting revealed policymakers fretted over the possibility of a deep recession when lowering interest rates in March.