NEW YORK (MarketWatch) - U.S. Treasury prices on Monday gained for a fourth consecutive session, sending yields sharply higher, on worries recent bailouts may not prevent more bank failures.
"Frayed nerves will calm in this time frame and catch up to the facts, which is that the Fed, with its new authority, is flooding the financial system with money--literally printing money--at a time when the Treasury is set to remove troubled assets from the banking system," said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.
The crunch that has nearly paralyzed short-term money markets is showing little sign of abating, with banks still reluctant to lend to one other amid concerns of more trouble in the financial sector.
Earlier, the cost of overnight borrowing in dollars rose Monday, with the London interbank offered rate, or Libor, jumping to 2.36875% from 1.99625% Friday, news reports said. Read more.
Two-year notes yields fell 7 basis points, or 4.56%, to 1.518%, down from 1.60% late Friday.
Yields on the benchmark 10-year note declined 8 basis point to 3.520%, down from 3.62% late Friday.
Investors flock to the relative safety of government bond as credit worries spread around the globe, with U.S. stock indexes opening sharply lower.
"U.S. equities remain bedeviled by credit concerns despite the latest liquidity measures by both the Fed and Treasury, along with some disappointment that a quick fix of global rate cuts was not implemented following fresh carnage in the European financial sector over the weekend," said analysts at Action Economics.
In separate steps, the Federal Reserve said it would hike the size of loans to as much as $900 billion, while the U.S. Treasury said it would expand its auction calendar to help oversee the large increase in financing needs given Friday's passage of the $700 billion bank rescue plan.
On Friday, Treasury prices gained, reversing earlier losses after the House approved the landmark legislation to rescue financial institutions that are saddled with bad assets
U.S. equity markets gave up their gains after the historic vote.