After showing a lack of direction earlier in the session, treasuries moved to the downside over the course of the trading day on Monday. The weakness that emerged came amid a substantial rally on Wall Street after the Obama administration revealed its plan to help banks sell toxic assets.
The benchmark ten-year note remained stuck in negative territory going into the close, ending the session just off its worst level of the day. Subsequently, the yield on the ten-year note closed up 3.5 basis points at 2.66 percent.
Stocks showed a substantial upward move after closing lower in the two previous sessions, with the Dow reaching its best intraday level in well over a month. At the close of the bond market, the Dow was up 375 points.
Some traders moved their money out of the relative safety of government-backed bonds and into stocks after the Treasury Department released details of a plan to buy up banks' toxic assets through a combination of public funds and private investment.
The Treasury's plan involves using up to $100 billion in funds from the $700 billion financial rescue plan passed in 2008 in addition to capital from private investors to generate an estimated $500 billion to purchase the toxic assets, a number that could double to $1 trillion over time.
In each case we're going to put capital alongside capital from private investors, Treasury Secretary Timothy Geithner said. The private investors will share the risk alongside of the taxpayer and the taxpayer will share returns alongside private investors.
He added, It uses a market mechanism for establishing pricing value. That will help protect the government from overpaying for these assets.
On the economic front, existing home sales unexpectedly rose in the month of February, according to a report released by the National Association of Realtors, with sales rebounding after hitting a twelve-year low in the previous month.
The report showed that existing home sales rose 5.1 percent to a seasonally adjusted annual rate of 4.72 million units in February from a pace of 4.49 million units in January. Economists had expected sales to slip to a 4.45 million unit rate.
Despite the monthly increase, however, existing home sales remained 4.6 percent below the 4.95 million unit level in February of last year.
Lawrence Yun, NAR chief economist, noted, Because entry level buyers are shopping for bargains, distressed sales accounted for 40 to 45 percent of transactions in February.
Our analysis shows that distressed homes typically are selling for 20 percent less than the normal market price, and this naturally is drawing down the overall median price, Yun added.
The report showed that the national median existing-home price for all housing types fell 15.5 percent to $165,400 in February from $195,800 in the same month a year ago, although the median price showed a modest increase sequentially.
While there are no major economic reports due to be released on Tuesday, trading is likely to be impacted by the release of the results of the Treasury Department's auction of $40 billion worth of two-year notes.
For comments and feedback: contact firstname.lastname@example.org