Treasury prices skyrocket as investors head for cover

2-year yields lowest since Eisenhower era

September 14, 2001|By BLOOMBERG NEWS

NEW YORK - U.S. Treasuries soared yesterday, pushing two-year note yields to their lowest level since Dwight D. Eisenhower was president, as investors sought the safest securities after the worst terrorist attack in history.

Two-year notes soared three-fourths of a percentage point, or $7.50 per $1,000 face amount, to $101.2188, driving yields down 40 basis points to 2.98 percent. That is the lowest since 1958, when Treasury securities maturing in two years yielded 2.37 percent, according to A History of Interest Rates, by Sidney Homer.

Benchmark 10-year notes rose $1.6875 to $102.9688, reducing yields 21 basis points to 4.62 percent.

"The country's been attacked and we're on the verge of war - would you go out and buy a new house, a new car?" said John Santoro, a bond trader at SG Cowen Securities Corp. Investors turned to bonds in a "flight to safety," he said.

Thirty-year bonds rose 68.75 cents to $99.75, pushing yields down 5 basis points to 5.39 percent. The gain was smaller than for notes, in part, because the government's longest-term debt doesn't trade actively. According to the Federal Reserve Bank of New York, trading of bonds with maturities of more than 10 years accounted for about 6 percent of the total $270 billion weekly turnover.

The gap between two- and 30-year yields was 2.4 percentage points.

The Fed added $70.2 billion in temporary cash to the banking system when it arranged overnight repurchase agreements, or repos, to keep banks functioning normally. That compares with $5.3 billion, the average daily since August.

Bond trading surged when the market opened at 8 a.m. New York time after a two-day halt caused by the attacks that demolished the World Trade Center in Manhattan's financial district and damaged the Pentagon in Washington.

Investors said Treasury yields may fall further because the attacks may cause the economy to slow and prompt the Fed to cut interest rates before its Oct. 2 meeting.

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