Treasurys Tank as Investors Clamor for Stocks

Treasury prices fell sharply Friday as investors brushed off the need for safety after an upbeat report on housing and encouraging words from the Federal Reserve chief.

As prices tumbled, yields pushed higher, which is worrisome for consumers because long-term Treasury yields are closely tied to interest rates on mortgages and other types of loans.

The drop in Treasurys came as major stock indicators soared to their highest levels of the year, lifted by a report showing a bigger-than-expected jump in existing home sales last month and a reassuring outlook on the economy from Fed Chairman Ben Bernanke.

"There's a sort of risk trade going on," Christian Hviid, director of asset allocation at Genworth Financial Asset Management, said of investors moving into stocks and out of safer bonds Friday. "It takes some competition away from Treasurys."

As the Dow Jones industrials rallied 155 points, the benchmark 10-year Treasury note dropped 1 4/32 to 100 14/32, pushing its yield up to 3.57 percent from 3.44 late Thursday. The 30-year bond plunged 2 6/32 to 102 2/32, and its yield rose to 4.38 percent from 4.25 percent.

Investors' appetite for risk increased as the National Association of Realtors said sales of existing homes rose 7.2 percent in July. It was the fourth straight monthly increase and the highest level of sales since August 2007. Meanwhile, Bernanke said the economy is on the verge of recovery, though lending will likely remain tight for some time.

Also weighing on bond traders is another round of upcoming auctions. The Treasury Department will issue a total of $197 billion in debt next week, consisting of three and six-month notes, and one-year, two-year, five-year and seven-year bonds.

Auctions have kept investors on edge this year as they worry about how the market will absorb the massive amounts of supply the government is issuing to help fund its bank rescue and economic stimulus programs.