TREASURIES-Rates, yield surge on govt credit-crisis moves
* Bill rates, bond yields soar on govt credit-crisis moves
* Safe-haven trades unwind on hopes of crisis ending
* Plan to mop up dodgy mortgage assets seen most dramatic (Updates market action)
NEW YORK, Sept 19 (Reuters) - U.S. Treasury bill rates and bond yields jumped on Friday after a series of dramatic steps by U.S. government to contain a credit crisis reversed days of panicked buying of government debt.
Traders unwound their safe-haven positions on hopes that the system-wide measures would be the watershed event to end the market turbulence that led to the demise of 11 U.S. commercial banks and a trio of top investment banks, analysts said.
"They are doing everything they can to infuse the markets with confidence," Ward McCarthy, managing director with Stone & McCarthy Research Associates, in Princeton, New Jersey said.
The most dramatic of these moves is a plan to take billions of toxic mortgage assets off banks' books.
Other measures include a temporary ban on short-selling of financial stocks; a guarantee program for money market mutual funds and opening up the Federal Reserve's discount window for financial institutions to buy high-quality asset-backed commercial paper.
Prior to these moves, shaken investors were flocking into cash and Treasuries bills while dumping stocks and risky bonds.
Three-month Treasury bill rate US3MT=RR briefly traded near 1.00 percent versus 0.26 percent before the announcement of the Treasury's money market plan.
Some Treasury bills traded below zero percent earlier this week, as anxious investors pulled out of money market funds and piled into ultra-short government debt. The three-month bill yield hit its lowest level since the 1950s on Wednesday.
Among longer maturities, benchmark 10-year notes US10YT=RR were down 1-21/32 in price at 101-31/32. Their yield, which moves opposite to price, was 3.78 percent, up from 20 basis points from late Thursday.
MONEY MARKET FUNDS
The credit crisis even engulfed usually ultra-safe money market funds this week. Investors rush to withdraw their money on worries about the funds' exposure to securities issued by investment bank Lehman Brothers Holding Inc (LEHMQ.PK), which declared bankruptcy, and insurance giant American International Group (AIG.N), which was rescued by the government.
On Tuesday, the Reserve Primary Fund, one of the oldest U.S. money market funds, fell below the $1 a share in net asset value that the funds are never expected to breach due losses on securities issued by Lehman.
Two days later, U.S. fund manger Putnam closed a $15 billion money market fund as a investors rushed to withdraw their funds.
Fears about the safety of the $3.5 trillion money market industry, which had been a major source of short-term funds for banks, worsened credit conditions and sent bank-to-bank lending rates roaring back to levels last seen at the start of the credit crisis more than a year ago.
Among other maturities, two-year notes US2YT=RR were down 27/32 in price to yield 2.16 percent, up 44 basis points from late Thursday.
Five-year Treasuries US5YT=RR were down 1-24/32 for a yield of 3.02 percent, up 36 basis points, while the 30-year bond US30YT=RR was down 2-19/32 to yield 4.35 percent, up 15 basis points from late Thursday. (Additional reporting by John Parry; Editing by Tom Hals)
