Posted by John_NorCal on 10/1/07 1:14pm
Msg #214054

Another update on the bond market

Treasurys climb on banking worries
Bonds move higher as Citigroup reports a 60 percent decline in quarterly profit.
October 1 2007: 10:48 AM EDT


NEW YORK (AP) -- Treasury prices rose Monday after Citigroup projected a 60 percent decline in quarterly profit and UBS announced it will take a quarterly loss, with both banking companies citing exposure to assets in the below prime mortgage business.

The earnings warnings made clear to investors that the rockiness in other credit markets has not yet passed. The warnings were a disappointment as they followed a profitable earnings report from Bear Stearns (Charts, Fortune 500), the Wall Street institution believed to have the highest exposure to subprime mortgage assets.

Although Treasury prices often do not respond sharply to individual corporate earnings announcements, they benefited from Monday's reports because the market is highly sensitive to the riskier elements of the credit sector. Since last summer, the market for mortgage-backed assets has been hurt by rising defaults and this drove Treasury prices higher.

Citigroup warns of huge earnings hit
The benchmark 10-year Treasury note rose 4/32 to 101 12/32 with a 4.57 percent yield, down from 4.59 percent at Friday's close. Prices and yields move in opposite directions.

The 30-year long bond advanced 10/32 to 102 26/32 with a 4.82 percent yield, down from 4.84 percent Friday. The 2-year note gained 1/32 to 100 2/32 with a 3.98 percent yield, little changed from Friday.

Bill Hornbarger, chief fixed income strategist at A.G. Edwards, predicted that the fourth quarter, which began Monday, will be benign for the Treasury market and feature some of the vigorous rallies seen in the third quarter. Those rallies were linked to disorder in the mortgage-backed asset and corporate credit markets.