Treasurys Get Mild Boost as Stocks Take Big Fall

U.S. Treasury debt prices rose modestly Thursday after another day of steep stockmarket losses revived the bid for safe-haven U.S. government debt.

Stocks stumbled again on Thursday, posting losses which, combined with those from Wednesday, created the worst two-day percentage slide since October 1987.

The stockmarket slide occurred despite a backdrop of global interest rate cuts. The Bank of England cut rates to their lowest level in more than half a century. The European Central Bank and Swiss National Bank also cut rates.

Hurt by a disappointing outlook from Cisco Systems and bleak sales from major retailers, the Dow stock index fell 4.85 percent, the S&P 500 stock index plunged 5 percent, and the Nasdaq fell 4.3 percent.

Adding to the Pandora's box of economic troubles, the number of new weekly jobless claims fell, but remained high enough to underscore the economic challenges facing President-elect Barack Obama.

Worries about the economy whetted investors' appetite for safe assets like U.S. Treasurys, analysts said.

"The desire for safety is an ongoing theme," said David Resler, chief economist at Nomura Securities in New York.

"It's all stocks," said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi. "Stocks headed down and that put a bid into Treasurys."

Two-year Treasury notes rose 3/32, their yields easing to 1.29 percent from 1.34 percent on Wednesday.

Benchmark 10-year Treasury notes rose 2/32 in price, its yield easing to 3.69 percent from 3.70 percent late on Wednesday.

Given the steep slide in stocks, the gains in Treasurys prices were tempered by apprehension about upcoming supply, after the U.S. Treasury announced a record fourth quarter borrowing program earlier this week, as U.S. government seeks to fund its banking system bailout, analysts said.

The Treasury plans to sell a total of $55 billion of 3-year and 10-year notes and reopened 30-year bonds next week to meet its quarterly refunding needs. The amount far exceeds the $18 billion refunding in November of last year.

The supply onslaught "is the main reason we think that Treasury prices will be capped even in the weak economy scenario," said Andrew Brenner, senior vice president at MF Global in New York.

Rupkey said the billions in new cash that the government would need to fund itself in the fourth quarter was "unprecedented" and should lead to higher yields.

"Dealers would like the market to cheapen before they have to bid on all this paper next week at the quarterly refunding," he said.

Looking ahead, Rupkey said the Labor Department's October employment report would have to be substantially weaker than expected before bonds could rally.

The U.S. Labor Department's employment data due on Friday is expected to show that payrolls shed about 200,000 jobs in October after losing 159,000 jobs in September.

"We already know we're in a recession," Rupkey said. "I guess if jobs were down 300,000, bonds could rally."

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