Bonds rise as Greece debt woes spur bank fears

NEW YORK: US Treasuries prices rose on Tuesday after European officials debated making banks take bigger losses on Greek debt and delayed a vital financial payment to Athens until mid-November.

These developments intensified fears about a Greek default, which could ripple across the global banking system. In an attempt to contain the problem, France and Belgium will guarantee the financing of Dexia due to its exposure to Greek debt. A rescue plan could involve breaking up the bank.

Jitters over a major banking crisis ignited fresh selling in risky investments, hammering global stock markets to a 15-month low. Investors piled into US Treasuries, German Bunds and other perceived safehaven assets.

"Treasury bulls have plenty to be happy about with a fresh round of global jitters driving prices higher. News that Dexia would be broken up has made the market nervous again, sending equity markets sharply lower," said Gennadiy Goldberg, fixed income analyst at 4Cast Ltd. in New York. pushed its yield down to 2.700 percent, a level last seen since early January 2009.

Benchmark 10-year Treasury notes were up 2/32 in price from Monday's close, paring earlier overseas losses. Its yield was last 1.74 percent, down almost 1 basis point from late Monday.

The 10-year note also benefited from traders preparing for the upcoming Federal Reserve's purchase of eight- to 10-year Treasuries, a part of its "Operation Twist" bond program. It plans later Tuesday to buy 4.25 billion to $5 billion in government debt due in Nov. 2019 to August 2021.

The US central bank's $400 billion program is aimed at lowering long-term borrowing costs like mortgage rates in an attempt to boost loan activity, whose recent slowdown has worried policymakers.

With no major US economic releases, traders will look for fresh clues about Fed policy and the economy when Fed Chairman Ben Bernanke testifies before Congress' Joint Economic Committee.

Copyright Reuters, 2011