Investors Rush to Treasuries; Yields Dive

Wall Street reopened trading of Treasury securities Thursday and was met by a surge in demand--a classic “flight to safety” by frightened investors.

Meanwhile, stock market officials announced that equity trading will remain suspended today, but is expected to resume Monday at 9:30 a.m. EDT.

In Chicago, major commodity markets opened Thursday for the first time since Monday amid heightened security.

Analysts looked to the resumption of Treasury trading for an indication of U.S. investors’ mood after Tuesday’s devastating terrorist attacks.

Demand soared as electronic and telephone trading of bonds resumed at 8 a.m. EDT, pushing yields on the securities dramatically lower--in some cases to their lowest levels since the 1950s.

But volume dwindled later in the abbreviated session, which ended at 2 p.m EDT, analysts said.

“You don’t have a lot of the brokers operating,” noted Andy Brenner, head of global bond sales at Investec Ernst & Co. in New York.

Bond dealer Cantor Fitzgerald, which typically accounts for about a quarter of Treasury trading, lost about 700 employees when the World Trade Center tower holding its New York offices collapsed.

Cantor said it resumed trading Thursday from a backup site in New Jersey, but some market participants said they didn’t see Cantor information on trading screens, according to Bloomberg News.

Yields on short-term and long-term Treasuries tumbled as buyers poured in. The yield on the three-month T-bill fell to 2.82% from 3.26% on Monday. The yield on the two-year T-note slid to 2.98% from 3.50% Monday, and now is the lowest since the late 1950s.

The 10-year T-note yield, a benchmark for mortgage rates, fell to 4.62% from 4.84% on Monday. It’s now the lowest since early 1999.

Treasury demand was fueled in part by investors’ desire to own super-safe securities at a time of extreme uncertainty about the global economy. In addition, many investors expect the Federal Reserve to further cut short-term interest rates in coming days or weeks to calm global investors. That could put downward pressure on all rates. The Fed already has cut rates seven times this year.

“We are probably going to see the Fed acting quite early, maybe in the next couple of days, to restore lost confidence” after the attacks, said Rabbani Wahhab of Aberdeen Asset Management Ltd. in London.

The Fed and other major world central banks continued to pour reserves into the banking system Thursday to keep credit available.

For shellshocked U.S. bond market traders who filed in for their first day of work since Tuesday’s attacks, Thursday was a day of grief even as they tried to fill customers’ orders for bonds. The Treasury bond business is dominated by a relatively close-knit community centered in New York, analysts noted.

“Everybody in this business is probably going to know someone who got killed,” said Steven Wood, economist at FinancialOxygen, a financial firm in Walnut Creek, Calif.

“I probably know a couple of hundred people at Cantor, and they’re probably dead,” said a government bond trader at a U.S. primary dealer in New York. “It’s just so devastating. I don’t think people have really felt the effect right now.”

On a normal day, bond traders’ discussions focus on economic data, such as Thursday’s reports showing higher jobless claims and plunging consumer confidence. But on Thursday, “Inevitably you drift back to talk about friends and their companies. It’s hard to remain focused,” said Richard Schlanger, a bond fund manager at Pioneer Investments in Boston.

In Chicago, the resumption of commodity trading saw prices rise on key grain futures contracts.

Soybeans led the rally at the Chicago Board of Trade on worries that shipping grain overseas could get more expensive in the next few months if shippers’ insurance costs rise because of this week’s attacks.

Some traders sought to lock in grain prices because of concerns about those costs. Near-term soybean futures jumped to $4.80 a bushel from $4.64 Monday. Corn and wheat prices also rose.

Bloomberg News and Reuters were used in compiling this report.