Friday, February 13, 2009

Treasury prices sit tight

Government debt prices traded in a narrow range Friday as investors assessed the Obama administration's economic rescue efforts and the volume of debt coming to market to fund the operations.

The House and Senate are slated to vote Friday on the $789.5 billion economic stimulus compromise reached earlier this week.

As the stimulus bill moves closer to passage, details were also emerging about President Obama's plan to help struggling homeowners by subsidizing mortgage debt in order to stem the tide of foreclosures. The plan has yet to be announced, but sources say the federal government would devote at least $50 billion to encourage banks to modify loans for struggling homeowners.

Earlier in the week, Treasury Secretary Tim Geithner outlined a rescue plan for the failing banking sector, but that announcement was shrugged off for its lack of clarity.

In order to fund the various rescue measures for the economy mired in recession, the government has had to bring a record volume of Treasurys to market. Treasury completed a record $67 billion quarterly refunding this week, which included the auction of 3-, 10- and 30-year issues.

Debt prices: The price of the newly 10-year note edged up 1/32 to 99-22/32 and its yield dipped to 2.79%. Bond prices and yields move in opposite directions.

The yield of the newly issued 30-year bond rose to 3.55% from 3.50% late Thursday. The 2-year note edged up 1/32 to 99-30/32 and its yield dipped to 0.91%.

The yield on the 3-month note fell to 0.25% from 0.30% the prior day. Demand for the shorter-term note has been seen as a gauge for investor confidence.

Lending rates: Bank-to-bank lending rates were almost unchanged. The 3-month Libor rate was 1.24% Friday, according to data on The overnight Libor rate, meanwhile, held steady at 0.30%.

Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London.

Two credit market gauges were showed a decrease in confidence in the lending markets. The "TED" spread widened to 0.99 percentage point from 0.93 percentage point the previous day. The bigger the TED spread, the less willing investors are to take risks.

Another market indicator, the Libor-OIS spread, increased to 0.98 percentage points from 0.96 percentage point the previous day. The wider the spread, the less cash is available for lending.

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