April 30, 2008 > Treasurys tumble
By Joe Bel Bruno, AP Business Writer
NEW YORK (AP), Apr 25 _ Treasury prices extended their decline Friday as investors bet that the Federal Reserve will indicate next week it plans to end its campaign of interest rate cuts.
The central bank is widely expected to cut rates by a quarter percentage point at its policy meeting on Wednesday. A growing number of economists predict the Fed will then keep rates on hold to ward off inflation.
The Fed has already noted that inflation is among its concerns, and many analysts have warned that further rate cuts would accelerate inflation and devalue the dollar. Interest rates have fallen by 3 percentage points since mid-September.
``I think the Fed will give some direction and indicate a pause,'' said Sean Simko, head of fixed-income management at SEI Investments. ``The economic conditions continue to worsen, but I think they'll pause and see the effects of the recent easing and all the stimulus added into the economy.''
However, Simko said the Fed could still come back later and resume rate cuts. He expects short-term government debt will remain volatile until the central bank releases its statement Wednesday afternoon.
The selloff put the most amount of pressure on 2-year notes, which have declined sharply this past week. The debt, the most sensitive to interest rate movements because of its short duration, fell 1/32 to 99 13/32 and yielded 2.42, up from 2.39 percent Thursday.
The benchmark 10-year Treasury note fell 10/32 to 97 1/32 and yielded 3.87 percent, up from 3.82 percent late Thursday, according to BGCantor Market Data. Prices and yields move in opposite directions.
The 30-year long bond fell 25/32 to 96 14/32 and yielded 4.60 percent, up from 4.54 percent late Thursday.
Yields were unchanged in after-hours trading.
The 3-month Treasury bill's yield was at 1.38 percent, down from 1.25 percent late Thursday, while its discount rate was at 1.353 percent.
Treasury investors also kept their eye on the stock market's moves during the session. Both the Standard & Poor's 500 index and Dow Jones industrial average closed slightly higher after being in negative territory for much of the session.
The Reuters/University of Michigan consumer sentiment index came in at 62.6 for April, down from 69.5 a month earlier _ and the lowest reading since the early 1980s _ as Americans dealt with rising energy and food prices. Consumers' flagging mood is troubling for Wall Street because consumer spending accounts for about 70 percent of U.S. economic activity.