Two-year Treasury notes fell the most in almost a month overnight after the Abu Dhabi Investment Authority said it would take a $7.5 billion, 4.9% stake in troubled U.S. banking giant Citigroup (full story), and the Federal Reserve said it would offer at least $8 billion in loans for triple the normal time period. "Treasurys are getting whacked," bond broker Kenny Borowicz said. "It may restore investor confidence in Citigroup and perhaps in the banking sector and the economy in general." After falling to 2.87% Monday, the two-year Treasury yield was back up to 3.03% in early London trading. Two-year yields, among the most sensitive to interest rate speculation, have plummeted more than 2% since June as investors shun anything less than government-guaranteed debt. The drop in overnight Treasury prices, coupled with a strong climb in equity futures, signal investors are initially encouraged by the Abu Dhabi vote-of-confidence and the Fed move. The Fed said Monday it would inject at least $8 billion into deflated capital markets through six-week loans maturing on Jan. 10; ordinary repos usually max out at two weeks. "The timing and amounts of subsequent term operations spanning the year end will be influenced by market and reserve developments," the New York Fed said in a statement.
Ameristock's Two-Year Treasury ETF (GKA) and iShares' 1-3 Year Treasury ETF (NYSEARCA:SHY) are exchange-traded vehicles that offer exposure to Treasury movements.
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