December 8, 2008 / 4:54 PM / 11 years ago

TREASURIES-Prices fall as stock gains damp safety bid

* U.S. Treasuries retreat as stock climb damps safety bid

* Prospective stimulus package, upcoming supply weigh

* Treasury to sell $28.0 billion in 3-year notes on Dec 10

By Ellen Freilich

NEW YORK, Dec 8 (Reuters) - U.S. Treasuries prices fell on Monday as global stock market gains .DJI drew investors into riskier assets and away from safe-haven U.S. government debt.

The bond market retreat began on Friday when investors took profits — with yields at five-decade lows — and late-session buying in the equity markets damped the safety bid for U.S. Treasuries.

Analysts said investors seemed more risk tolerant and willing to bet that President-elect Barack Obama’s plan for the largest infrastructure investment since the 1950s would help avert a deeper slump in the economy. For details, see [ID:nN02300667]

David Dietze, chief investment strategist at Point View Financial Services in Summit, New Jersey, said prospects for a bailout for Detroit’s big automakers and “record infrastructure spending that President-elect Barack Obama is talking about implementing early next year” made the safe-haven drive to Treasuries a little less intense.

Prospects for a big stimulus package drove the Dow Jones industrial average .DJI up 3.09 percent, the Standard & Poor's 500 Index .SPX up 3.5 percent, and the Nasdaq Composite Index .IXIC up 3.4 percent,

In contrast, benchmark 10-year Treasury notes US10YT=RR, which fell nearly 1-1/2 points on Friday, were down 5/32 before midday on Monday. Their yields — which move inversely to prices — rose to 2.73 percent from 2.71 percent late on Friday.

“Huge amounts of issuance for Treasuries down the road” also weighed on Treasuries prices, Dietz said.

The U.S. Treasury said on Monday that it would sell $30 billion of four-week bills on Dec. 9, $28 billion in three-year notes on Dec. 10, and $16 billion in nine-year, 11-month notes to settle on Dec. 15.

Five-year Treasury notes US5YT=RR, which fell nearly a full point on Friday, were down 6/32, their yields rising to 1.74 percent from 1.70 percent on Friday.

The difference between short- and long-term yields narrowed sharply last week as long-term yields fell on comments by Fed Chairman Ben Bernanke that the Fed could purchase “substantial quantities” of longer-term securities issued by the U.S. Treasury or government-sponsored enterprises in an effort to lower yields and stimulate demand.

The Fed is expected to cut the federal funds rate by 50 basis points to 0.5 percent at its policy meeting next week, according to a Reuters poll.

Two-year Treasury notes US2YT=RR were unchanged from late Friday levels, their yields at 0.94 percent.

Thirty-year bonds, which fell two points on Friday, were down another 23/32 while their yield rose to 3.15 percent from 3.12 percent late on Friday.

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