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Concerns about loan losses boost Treasurys

January 18, 2010 | The Associated Press

NEW YORK (AP) -- Interest rates fell for a second day in the bond market as rising loan losses at JPMorgan Chase & Co. helped pull investors into Treasurys.

The gain in Treasury prices drove yields lower. Major stock market indexes fell from 15-month highs in their biggest losses of 2010 after JPMorgan's quarterly revenue fell short of expectations and the bank issued cautious comments about its consumer business.

A report on consumer sentiment disappointed some investors and helped make a case for safe havens like Treasurys. The preliminary Reuters/University of Michigan consumer sentiment index for January edged up only slightly to 72.8 from 72.5 in late December.

Howard Simons, strategist with Bianco Research in Chicago, said Treasury prices have benefited as foreign buyers continue to turn out for sales of U.S. debt. The Treasury Department's auction of $84 billion in notes and bonds during the week drew strong demand.

Interest rates also fell Thursday after a drop in retail sales and an increase in the number of people seeking unemployment benefits added to concern about the economy. On Friday, the drop in stocks made Treasurys all the more compelling. The Dow Jones industrial average slid 101 points, its steepest slide since Dec. 31.

"There's nothing that is scaring people out of Treasurys and you don't have a lot of people willing to buy high after high after high in stocks," Simons said. "At some point the market has to stop going up in a straight line," he said, referring to a 10-month surge in stocks.

The yield on the 10-year Treasury note that matures in November 2019, which is a benchmark for interest rates for mortgages and other consumer loans, fell to 3.68 percent in late trading from 3.74 percent late Thursday. The price rose 16/32 to 97 16/32.

Treasurys also got a boost from a government report that inflation remains in check. Prices, as measured by the Consumer Price Index, rose 2.7 percent in 2009, according to the Labor Department. Core inflation, which strips out often-volatile food and energy sectors, rose 1.8 percent. That was the second-smallest rise in four decades.

The prospect of tame inflation was welcome news for Treasury investors because rising prices can eat into the returns of fixed-income investments.

Meanwhile, investors shrugged off gains in industrial production as well as in manufacturing in New York State.

The yield of the 30-year bond that matures in November 2039 fell to 4.58 percent from 4.63 percent as its price rose 25/32 to 96 19/32.

The yield on the two-year note that matures in December 2011 fell to 0.88 percent from 0.93 percent. The price advanced 3/32 to 100 7/32.

The yield on the three-month T-bill that matures April 15 rose to 0.05 percent from 0.04 percent. Its discount rate was 0.06 percent.

By Tim Paradis, AP Business Writer

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