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Treasury bond interest rates jump for second day

September 26, 2011 | 12:11 pm

U.S. Treasury bond yields are rising for a second straight day as some investors and traders take profits after last week’s big bond rally.

A rebound in stocks also is pulling some money out of bonds and into equities.

The 10-year Treasury note yield, a benchmark for mortgage rates, was at 1.90% at about noon PDT Monday, up from 1.83% on Friday and up from a 60-year low of 1.72% on Thursday.

The 30-year T-bond (charted below) rose to 3.00% from 2.90% on Friday and 2.80% on Thursday.

30yr926 Long-term Treasury yields plunged Wednesday and Thursday after the Federal Reserve said it would shift its massive bond holdings more toward longer-term securities, hoping to pull interest rates on those issues down further to help the economy.

The Fed also gave investors another reason to head for the relative safety of bonds: In their post-meeting statement Wednesday, policymakers warned of "significant downside risks to the economic outlook."

That triggered a blistering sell-off in stocks that drove the Dow Jones industrial average down a total of 5.9% over two days.

But stocks stabilized Friday, and they’re rallying Monday as investors once again get their hopes up that Europe will avoid a financial collapse. The Dow was up 200 points, or 1.9%, to 10,971 at about noon PDT.

Bill O’Donnell, government bond strategist at RBS Securities in Stamford, Conn., said there is “a lot of chatter” on Wall Street about big investors allocating some of their assets from bonds to stocks as the end of the quarter approaches Friday. The Dow is off nearly 12% for the quarter so far, while bonds have rocketed in value as market yields have tumbled.

But O’Donnell said Treasury bond yields are likely to head lower again unless the economy reaccelerates. He noted that the Fed’s planned long-term bond purchases haven’t even begun yet: That $400-billion program will probably begin next week and last through June.

RELATED:

Stocks rally on hopes for solution in Europe

Fed revives 'Operation Twist' to pull down long-term rates

Q&A: How the Fed move could affect the economy and markets

-- Tom Petruno

Twitter.com/tpetruno

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