Funds rose, driving 10-year note incomes to the lowest level since March 2004, as concern that subprime losses continue to extend a decrease in stocks and increased the request of fixed-income assets.
The output on the 30-year bond fell the most in six years after Goldman Sachs Group Inc. analysts said HSBC Holdings Plc may have to set aside a further $12 billion for bad debts. The Federal Reserve sought to ease given the fact that banks will run out of cash next month by planning its first long-term injection of year-end funds in two years.
The 10-year note's bond fell 17 basis points, or 0.17 percentage point, to 3.83 percent at 3:55 p.m. in New York, according to bond broker Cantor Fitzgerald LP.
The yield on the 30-year bond went down 17 basis points to 4.26 percent after touching 4.23 percent, the lowest since July 2005. It was the greatest descent since Oct. 31, 2001, when the Treasury Department said it would stop issuing the security.
HSBC, Europe's largest bank, said it will bail out two structured investment vehicles, taking on $45 billion of assets to avoid a fire sale of bond retentions. The rescue is the biggest for companies that borrow short term to invest in higher- yielding securities.
Citigroup Inc., which has announced at least $8 billion of fourth-quarter write-offs on mortgage investments, is reviewing ways to ``be more efficient and cost effective'' as it seeks a new chief executive officer, said Christina Pretto, a spokeswoman for the bank.
The Standard & Poor's 500 Index fell 1.4 percent, and the Dow Jones Industrial Average dropped 1.1 percent.
Other financial firms and banks have reported more than $50 billion of mortgage-related losses and writedowns, directing investors to the relative security of government debt. Treasuries of all maturities have returned 2.76 percent through Nov. 23, according to Merrill Lynch & Co. bond indexes. In September 2003 they gained 2.98 percent.
Yields on two-year notes fell 16 basis points to 2.9 percent after touching 2.88 percent, the lowest since December 2004. They yielded 90 basis points less than 10-year notes, 11 basis points from the largest spread since January 2005, which was reached last week. The constrictive gap suggests reduced demand for shorter-term securities.
Futures on the Chicago Board of Trade show a 96 percent chance that the central bank will lower its target rate for overnight lending between banks by a quarter-percentage point to 4.25 percent on Dec. 11. The Fed has diminished the rate by three quarters of a percentage point this year to 4.5 percent.
Yields on two-year notes are at ``extreme levels, indicating the bond market's perspective that the Fed needs to go to an easing cycle,'' said T.J. Marta, a fixed-income strategist in New York at RBC Capital Markets, the investment- banking arm of Canada's biggest lender. It's no longer asking politely. It's back to demanding.''
Losses have made banks uneager to lend to each other, keeping the statistic overnight Fed fund rate above the central bank's target almost every day since Nov. 9.
The New York Fed said today it will arrange $8 billion of long-term buyback agreements, or repos, to extend financing into the new year ``in response to heightened pressures in money markets for funding through the year-end.
The repos, as the first such operation since 2005, will be set Nov. 28 and will be finalized Jan. 10, the central bank said in a statement. The Fed said it also plans to ``provide sufficient reserves to resist upward pressures'' on the funds rate around the end of the year.
The cost of borrowing dollars for three months rose as banks saved up cash to cover their commitments through the end of the year. The British Bankers' Association said today that London interbank offered rate, or Libor, for dollars went up 1 basis point to 5.05 percent, for a four-week high and the ninth straight day of earnings.