November 21, 2008 / 9:13 PM / 11 years ago

TREASURIES-US yields rebound from record lows in profit taking

*Profit-taking pressures bonds, yields off historic lows

*Late surge in stocks saps any safety bid for bonds

*Reports say Geithner to be tapped for Treasury secretary

*T-bill yields hug close to zero, TED spread remains wide

* For the latest market news, please click on FINEWS (Adds strategist quote, updates prices)

NEW YORK, Nov 21 (Reuters) - U.S. Treasury debt prices plunged on Friday with yields rebounding from historic lows, as traders booked profits on this week’s unprecedented gains in a safe-haven stampede from stocks into bonds and cash.

Bonds extended losses on Friday following reports that Timothy Geithner, the president of the New York Federal Reserve Bank, was expected to be tapped by President-elect Barack Obama to replace Henry Paulson as the secretary of the U.S. Treasury.

Stocks surged after the Geithner reports and further sapped any safe-haven bid for government debt.

“At least the markets have a lot of confidence in (Geithner) it looks by the run up in prices in equities,” said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.

Treasuries, which had rallied on Thursday as the benchmark Standard & Poor’s 500 index sank to an 11-year low, were also sold off early due to remarks from Richmond Fed President Jeffrey Lacker, who said it was reasonable to expect the U.S. economy to reverse its downward track next year from the current downturn, analysts said. For more, see [ID:nN21459279]

“I believe this is profit-taking before the weekend,” said Kevin Giddis, head of fixed-income sales, trading and research at Morgan Keegan in Memphis, Tennessee.

Benchmark 10-year Treasury notes US10YT=RR were down 1-22/32 in price with the yield clawing back from 50-year lows. The yield, which moves inversely to the price, advanced to 3.19 percent from 3.00 percent late on Thursday.

The 30-year bond US30YT=RR traded down more than 4 points with its yield rising to 3.68 percent from 3.48 percent.

On the week, 10- and 30-year yields were down more than 50 basis points. A day after breaking through historic levels on yields, traders and analysts said the only sure thing is more volatility.

Risk aversion, while subsiding a bit, remains alarmingly high, as many investors are still clinging to cash on expectations of unrelenting swings in stocks and bonds.

One-month US1MT=RR and three-month US3MT=RR Treasury bill yields are barely above zero percent.

The spread between three-month bill yields and three-month rates on unsecured dollar funds in London, which widens with tighter credit conditions, was hovering at the high-end of its historic range at 214 basis points.

Two-year note US2YT=RR yields moved above 1 percent from their record low set on Thursday. The low levels suggested traders expect the Fed will keep interest rates very low for a sustained period.

Traders predicted investors will scoop up next week’s record supply of two- and five-year notes. The Treasury will auction $36 billion in two-year debt on Monday, followed by $26 billion of five-year securities on Tuesday. (Reporting by Burton Frierson, Richard Leong, Chris Reese: )

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