NEW YORK (AP) - Treasury prices rallied Friday on worries that global banks will take more massive writedowns for their exposure to shaky credit markets.
The credit markets have been in a perilous state since August; souring home loans made to borrowers with weak credit are creating havoc for the banks and investors who carry securities backed by the bad mortgages. Although this has caused investors to shun many types of corporate bonds, it also has sparked numerous rallies for Treasurys and some other types of government-backed debt.
"Unless you are trading Treasurys, spreads have been widened on your fixed-income investments," said Kevin Giddis, managing director of fixed-income at Morgan Keegan & Co.
A spread represents the distance between the yield on a corporate bond and the yield of a government note of comparable maturity. Wider spreads speak to investor uneasiness, while tighter spreads are an indication of confidence.
The benchmark 10-year Treasury note rose 13/32 to 100 1/32 with a yield of 4.25 percent, down from 4.28 percent in late trade Thursday.
The 30-year note advanced 19/32 to 105 27/32 with a yield of 4.64 percent, down from 4.66 percent.
The 2-year note gained 7/32 to 100 12/32 with a yield of 3.42 percent, down from 3.48 percent.
Risk aversion plays were back in force on Friday, causing heavy losses for stocks and new gains for Treasurys, after Wachovia Corp. revealed it may take a $1.1 billion writedown for October alone. The writedown would account for the declining value of securities backed by risky collateral. Wachovia also sharply increased its loan loss provisions.
Barclays PLC has denied rumors it soon will take a $10 billion writedown for bad credit. But in the current environment even denied rumors are exerting influence.
And in Japan the Nikkei newspaper reported that Mizuho Financial Group Inc.'s Mizuho Securities Co. is being hit by large subprime losses.
All these reports follow news that Citigroup Inc. may write down an additional $11 billion for its subprime-related losses. Merrill Lynch & Co. Inc. has written down $8.4 billion and Morgan Stanley has taken a $3.7 billion writedown for similar losses.
The University of Michigan's consumer sentiment survey's preliminary reading for November Friday showed a decline to 75.0 from 80.9 in October. The result was below economists' estimates. Consumers have been one of the engines of the economy and if their spending slows significantly the overall economy will suffer too.
However, Action Economics said on its Web site that "the bond market shrugged off University of Michigan sentiment weakness, which merely added one more bleak fact to the market maelstrom."
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