Bonds round-up: Fear sends yields diving
Bond yields tumbled again in the US as the collapse of Bear Stearns and concern that Lehman Brothers might be next sent investors stampeding for the safety of government -backed debt.
The three-month bill rate hit its lowest since the late fifties, while gains in two-year yield hit five-year lows as the Federal Reserve reduced the rate on direct loans to banks by a quarter-percentage point to 3.25%.
Economists are tipping the Fed to unveil a 1 percentage point cut in interest rates tomorrow to try to shore up the crumbling financial markets, but there are doubts this will be enough.
Two year treasury bill yields plunged 18 basis points to 1.3% while the yield on the benchmark 10-year note dropped 16 basis points to 3.3%.
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Concerns about another investment bank foundering sparked the buying. Lehman Brothers shares fell by more than a third ahead of its quarterly results this week and it put out a statement saying it had no liquidity problems.
Investors had already been stunned by the collapse of Bear Stearns, which JP Morgan picked up for $240m, a tenth of its value last Friday and a fraction of value this time last year.
In Europe investors also ran for cover. Short gilt yields tumbled nearly 15 basis points to 3.68% while ten-year gilts declined by just over two basis points to 4.3%.
German bunds also rose sharply. Two-year bond fell by 14 basis points to 2.94% while ten-year bunds dropped more than 4 basis points to 3.69%.
