Treasuries Gain as Stocks Fall on Concern Bank Losses to Worsen

Daniel Kruger and Sandra Hernandez
Bloomberg
Monday, July 14, 2008

Treasuries gained, pushing two-year note yields down the most in more than two weeks, as stocks fell on concern that U.S. banking-system losses may be worsening.

Predictions of wider losses overshadowed the Treasury Department’s support of Freddie Mac and Fannie Mae. Washington Mutual Inc. posted its biggest drop ever and National City Corp. tumbled to a 24-year low after last week’s collapse of IndyMac Bancorp Inc. spurred speculation that more regional banks may be short of capital.

“There’s a significant amount of grave concern about the banking sector,” said T.J. Marta, a fixed-income strategist at RBC Capital Markets in New York, the investment-banking arm of Canada’s biggest lender. “Now what we’re having is solvency concerns.”

The yield on two-year note fell 15 basis points, or 0.15 percentage point, the most since June 26, to 2.46 percent at 4:07 p.m. in New York, according to BGCantor Market Data. The price of the 2.875 percent security due in June 2010 rose 9/32, or $2.81 per $1,000 face amount, to 100 25/32.

The benchmark 10-year note’s yield declined 10 basis points, the most since June 6, to 3.86 percent. It earlier touched 4.02 percent, the highest since July 2.

Treasuries initially declined after Treasury Secretary Henry Paulson put a plan before Congress to provide support to Fannie and Freddie, the government-sponsored enterprises that purchase or finance almost half of the $12 trillion of U.S. mortgages.

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