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Treasures: Bonds gain on triple-digit Dow selloff

January 22, 2010 | CNNMoney.com

Bond prices rose Wednesday, reversing earlier losses, after a triple-digit Dow selloff on Wall Street.

What prices are doing: The benchmark 10-year bond gained 13/32 to 98-4/32, pushing the yield down to 3.60% from 3.65% late Wednesday. Bond prices and yields move in opposite directions.

The 30-year bond rose 17/32 to 97-28/32 and its yield was 4.50%. The 2-year ticked up 3/32 to to 100-10/32 and yielded 0.83%.

What's driving prices: Investors looked for safer assets after stocks tumbled, with the Dow falling more than 200 points, on a strong dollar and concerns that China had asked banks to halt lending for the month.

Falling stocks tend to boost government debt prices, as investors look to plunk their cash into safer, lower yielding assets like bonds.

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What analysts are saying: "This Wall Street fall today came at a time when a lot of people were on the same side of the boat -- the stock side -- now we have sudden rush to the bond side," said Michael Cheah, bond fund manager at AIG SunAmerica.

Investors are nervous, Cheah said, and will remain so as governments at home and abroad begin to pull out of the liquidity-boosting operations that have been in place for months.

"As we remove supports one piece at a time, there is a worry that something is going to go wrong," Cheah said.

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These concerns should keep bond prices elevated, Cheah said, because fundamentals remain weak despite the strong stock market performance over the past several months.

"In general, bonds should continue to do well barring inflationary concerns," Cheah said. "Right now, that doesn't seem to be an issue."

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