Treasury yields bounce back as stocks recover

Investors exited Treasurys and bought up stocks after Thursday's sharp sell-off on Wall Street, but they remained nervous that the financial services and automotive industries are in severe disrepair.

Citigroup's shares plunged below $4 a share on worries about potential future losses, while Democratic leaders began laying out conditions Friday that they say Detroit's Big Three automakers must meet before Congress considers giving them an emergency $25 billion lifeline.

The three-month Treasury bill's yield rose marginally to 0.04 percent from 0.01 percent late Thursday. When the yield is near zero, it indicates a high level of fear among investors since they are willing to earn virtually nothing on their investment as long as their principal is preserved. The discount rate was 0.05 percent.

Investors sold longer-term Treasury bonds as the Dow Jones industrial average recovered sharply following its 444-point plunge Thursday. The Dow finished up 494 points Friday, lifted by the news that President-elect Barack Obama was planning to choose New York Federal Reserve President Timothy Geithner as his Treasury Secretary.

The 2-year Treasury note fell 7/32 to 100 25/32 and yielded 1.09 percent, up from 0.97 percent late Thursday--the first time that yield fell below 1 percent in more than 60 years.

The 10-year note fell 1 23/32 to 104 21/32 and yielded 3.20 percent, up from 3.00 percent, the lowest yield since the 1950s.

And the 30-year bond fell 4 12/32 to 114 11/32 and yielded 3.70 percent, up from 3.46 percent--the lowest yield since the government started issuing the bond in 1977. On Thursday, the 30-year bond surged more than 9 points on escalating fears about the economy should the automakers collapse.

Bank-to-bank lending rates rose slightly on Friday, suggesting continued wariness among banks to lend. The London Interbank Offered Rate, or Libor, for three-month loans in dollars edged up to 2.16 percent from 2.15 percent on Thursday.

This rate could fall again after the Federal Deposit Insurance Corp. voted Friday to approve a plan to guarantee up to $1.4 trillion in U.S. banks' debt for more than three years.