Treasurys fall as stocks advance

Treasury prices dropped Tuesday as investors heartened by Wal-Mart Stores Inc.'s earnings report moved funds back into the stock market.
Wal-Mart, the world's largest retailer, is viewed as a bellwether not only of the retail sector, but of consumer spending. The fact that it managed an improved profit was taken as a sign that the beleaguered consumer may still be active, despite recent indications to the contrary.
The stock and government bonds often trade in opposite directions. Treasurys tend to sell off when investors are feeling confident enough to buy equities and other assets carrying more risk. That was the case Tuesday as investors returned from the Presidents Day holiday and poured money into stocks.
The benchmark 10-year Treasury note fell 7/32 to 97 with a yield of 3.86 percent, up from 3.77 percent late Friday. Prices and yields move in opposite directions.
The 30-year long bond lost 13/32 to 95 16/32 with a yield of 4.65 percent, up from 4.58 percent at the end of last week.
The 2-year note lost 1/32 to 100 8/32 with a yield of 1.99 percent, up from 1.92 percent late Friday.
Worries about inflation also contributed to the selling pressure on Treasurys. Investors were taken aback by a vigorous commodities market rally that put crude oil just a short distance from the closely watched $100 a barrel level. Higher energy prices are one of the main drivers of inflation.
Bond investors fear recent heavy interest rate reductions by the Federal Reserve have put the economy on an inflationary spiral.
The bond market has an ambivalent attitude toward rate cuts, which are considered positive because they cheapen the cost of money and stimulate market activity. At the same time, cheaper money generally produces higher prices over time and inflation erodes the value of fixed income investments.
The Federal Reserve has lowered the overnight Fed funds target by 1.25 percentage points since the start of 2008 and signaled that more rate cuts are being considered. This has led to worries that a Fed overly focused on stimulating troubled financial markets has grown lax about inflation.
"Traders are worrying more and more about inflation, especially when the Fed seems to be content with driving short-term yields lower and lower," said Kevin Giddis, managing director of fixed-income trading at Morgan Keegan.
Numerous recent vigorous Treasury market rallies in recent weeks have driven yields to levels that many bond market investors believe are too low. Some fear the market has priced in an excessively negative scenario for an economy that is weakening but is not in free fall.
Action Economics said that there are concerns in the market that the Treasury market is "overbought" and noted market speculation that bank and mortgage accounts Tuesday were aggressively selling longer-term bonds.