Treasurys rebound from slide as stocks fall

Treasurys rebounded Monday from last week’s slide as investors awaited a busy week of auctions and the Federal Reserve’s assessment of the economy.

A slump in the stock market after a four-week rally that added 15 percent to the Standard & Poor’s 500 index also boosted demand for safe-haven Treasurys.

The benchmark 10-year Treasury note rose 21/32 to 94 23/32, pushing its yield down to 3.78 percent from 3.86 percent late Friday. The yield stood at 3.76 percent before prices tumbled Friday following the government’s July jobs report. The drop in the 10-year is welcome news for the economy because the yield is tied to rates on mortgages and other loans.

Treasury prices could swing in the coming days. They have been volatile have in recent weeks around the government’s debt auctions.

The Treasury Department plans to auction a record $75 billion in debt this week as part of its quarterly refunding. The auctions start Tuesday with the sale of $37 billion in three-year notes. On Wednesday, the government will issue $23 billion in 10-year notes followed by $15 billion in 30-year bonds on Thursday.

Demand at most recent auctions has been stable but investors in both the stock and bond markets remain cautious. A drop in buyers could force the government to increase the interest it pays. That would drive up borrowing costs and could make it harder for the economy to recover. The government is raising money at a record pace to pay for its rescue of the financial system and its spending to revive the economy.

The latest gains in Treasurys follow a slide Friday after the Labor Department surprised investors by reporting that employers cut fewer jobs last month. The nation’s unemployment fell for the first time in 15 months; traders had been expecting it would tick higher. The report raised hopes for the economy and damped demand for Treasurys.

Investors also will be awaiting comments this week from the Fed about the economy. Investors will be scouring the policy statement that follows Wednesday’s conclusion of the two-day meeting for any signal of how policymakers might move on interest rates.

Interest rates are at a record low of essentially zero so policymakers will have to raise rates at some point or risk touching off rampant inflation. That isn’t expected to happen soon, however. If the Fed hikes rates too quickly it could disrupt a rebound in the economy.

In other trading, the 30-year bond rose 1 12/32 to 95 20/32, and its yield fell to 4.52 percent from 4.61 percent.

The two-year note rose 4/32 to 99 17/32 and its yield fell to 1.24 percent from 1.31 percent.

The yield on the three-month T-bill rose to 0.17 percent from 0.16 percent.

The cost of borrowing between banks was little-changed. The British Bankers’ Association said the rate on three-month loans in dollars ? the London Interbank Offered Rate, or Libor ? was essentially flat at 0.46 percent.

Copyright 2009 The Associated Press.