February 13, 2009 / 7:37 PM / 10 years ago

TREASURIES-Bonds resume slide in post-refunding selloff

* Dealers selling new bonds into market

* New stimulus plan heightens supply concerns

* Investors cautiously turn to riskier assets

By Pedro Nicolaci da Costa

NEW YORK, Feb 13 (Reuters) - U.S. Treasuries fell sharply on Friday as primary dealers sold newly acquired debt into the market following this week’s refunding auction, and as Washington’s new stimulus plan heightened supply worries.

“The stimulus package they’re talking about makes people wonder how we are going to pay for it,” said Doug Roberts, chief investment strategist at Channel Capital Research.

With bond issuance expected to reach $2 trillion just this year, selling seemed like the path of least resistance for the market.

Benchmark 10-year notes US10YT=RR eased 28/32 and were offering a yield of 2.89 percent, up 10 basis points from Thursday. The 30-year bond was also down steeply just a day after a weak auction of that maturity.

Investors were also cautiously dipping their toes into riskier assets, with corporate bonds being touted as a high-return alternative.

Data from Boston-based fund tracker EPFR Global published on Friday showed many were piling into high-yield bond funds, which have been experiencing a strong influx for nearly three months now.

Bond prices were also not helped by news that a Chinese official said that buying U.S. Treasuries was not the only option for his country’s central bank, contradicting an earlier comment.

Even with the lower prices on Friday, benchmark yields, which move inversely to prices, were on track for their biggest weekly fall so far this year in relief that the Treasury refunding had gone as well as it had.

But supply concerns remained, as the government is expected to issue more and more debt to fund various rescue plans for the financial industry.

“There is speculation that we are going to see a larger (government) package than we thought we were going to see, including subsidies, and that is weighing on the market,” said Thomas di Galoma, head of U.S. Treasury trading at Jefferies & Co in New York.

The widening scope of such measures was evident in news on Thursday that the Obama administration is working out a program to subsidize mortgage payments for troubled homeowners.

Economic weakness continued to put a floor under the market. The Reuters/University of Michigan survey showed consumer confidence fell to its lowest in three months in February. For details, see [ID:nN13275765]. (Additional reporting by Chris Reese; Editing by Jonathan Oatis)

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