Treasurys give up gains after Cox's speech

Treasurys prices rose Tuesday as investors moved into the relative safety of government debt on further concerns about the financial services sector and the economy.

Federal Reserve Chairman Ben Bernanke told Congress that the economy is facing "numerous difficulties" despite the central bank's campaign of interest rate reductions and steps taken to prop up the financial system.

Bernanke said the Fed is working to keep the economy growing while also making sure inflation doesn't flare up. His comments were a change from the Fed's policy statement in June when policymakers said that downside risks to growth had somewhat diminished.

The comments also came just two days after the Fed and the Treasury Department threw a lifeline to Fannie Mae and Freddie Mac, and more uncertainty grew about other financial institutions.

With the failure of IndyMac Bancorp, investors are nervous that other mortgage lenders and regional banks might be in trouble. Investors are also waiting for quarterly reports from Citigroup Inc., JPMorgan Chase & Co. and Merrill Lynch & Co. later in the week.

In late trading, the 10-year Treasury note rose 9/32 to 100 13/32. Its yield dropped to 3.82 percent from 3.86 percent on Monday, according to BGCantor Market Data. Yields move in the opposite direction from prices.

The 30-year long bond rose 5/32 to 98 19/32. Its yield was fell to 4.45 percent from 4.46 percent from Monday.

The 2-year note rose 5/32 to 100 30/32, and yielded 2.37 percent, down from 2.46 percent.

The 3-month Treasury bill's yield fell to 1.40 percent from 1.50 percent on Monday, and the discount rate fell to 1.38 percent from 1.48 percent.

Treasury prices gave up wider gains reached earlier in the session after Securities and Exchange Commission Chairman Christopher Cox unveiled a plan to curb short selling on Fannie Mae and Freddie Mac shares, giving investors renewed confidence to move back into stocks. However, the market wasn't able to hold on to those gains, and both the Dow Jones industrials and Standard & Poor's 500 index finished lower.

Financials have traded erratically this past year because of short selling, which is when investors sell a stock betting that it will move lower. That raised hopes that the SEC will expand the restrictions beyond the two government-sponsored lenders, and apply it to banks and brokerages.

Tom di Galoma, head of Treasurys trading at Jefferies & Co., said Cox's statement convinced some fixed-income investors to move money into the financial sector. "People are perceiving this will be a continued program with all the different financial companies," di Galoma said.