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Treasurys fall as S&P upholds bond insurers

February 26, 2008 | "Associated Press"

MBIA and Ambac hang on to 'AAA' rating needed to insure municipal bonds, putting pressure on bond prices. Ambac gains time to find bailout funding.

Treasury prices fell Monday after Standard & Poor's affirmed the ratings of troubled bond insurers MBIA (MBI) and Ambac Financial Group.

The news allows the insurers to hold onto the "AAA" ratings they need to continue to insure municipal bonds. It also buys Ambac more time in its efforts to secure bailout funding. There has been great uncertainty in the market whether Ambac will be able to receive its funding and avoid a ratings downgrade.

"The details of a bailout deal may not be hammered out, but Ambac (ABK) has gotten more time and that is what it was looking for," said Mirko Mikelic, a fixed income portfolio manager at Fifth Third Asset Management.

The ratings affirmations put additional pressure on Treasury prices, which already were pressured by housing data that some analysts thought was not as bad as it might have been. The ratings news also sent a hesitant stock market into rally mode.

The benchmark 10-year Treasury note fell 25/32 to 96 22/32 with a yield of 3.90%, up from 3.80% late Friday, according to BGCantor Market Data. Prices and yields move in opposite directions.

Interest rates: The new conundrum

The 30-year long bond fell 1 11/32 to 95 12/32 with a yield of 4.66%, up from 4.58%.

The 2-year note dropped 3/32 to 100 1/32 with a yield of 2.11%, up from 2.05% late last week.

The yield on the 3-month note rose to 2.90% from 2.19% Friday as the discount note dropped to 2.15% from 2.16% Friday.

A new report on existing home sales Monday met expectations, suggesting to some that the battered housing sector may be obtaining a measure of stability.

The National Association of Realtors reported that existing home sales fell 0.4% to 4.89 million in January. The result was exactly in line with the median estimate of Thomson/IFR, although it marked the slowest sales pace on records that date back to 1999.

The median price of a home sold in January slid to $201,100, a drop of 4.6% from a year ago. That news actually could be favorable as the market could come back to life if houses become cheap enough.

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