Bloomberg: Treasuries skyrocket on anticipation of Fed cut.

Treasuries skyrocket on anticipation of Fed cut.

Treasuries Rise; Sale of Bear Stearns Spurs Demand

March 17 (Bloomberg) -- Treasuries rose, driving yields on two-year notes down to 1.30 percent, as investors sought the relative safety of government debt after JPMorgan Chase & Co. agreed to bail out Bear Stearns Cos.

Traders began betting the Federal Reserve will cut its target for overnight loans by 1 percentage point tomorrow to keep losses in credit markets from pushing the U.S. economy into a recession, futures contracts on the Chicago Board of Trade show. The Fed trimmed its discount rate by a quarter-point before Asian stock markets opened, failing to halt a slump in regional equities.

``There's a possibility of a 1-point rate cut'' tomorrow, said Hiromasa Nakamura, one of the investors for the equivalent of $30.9 billion at Mizuho Asset Management Co. in Tokyo. ``The economic situation is very serious. There's a flight to quality in Treasuries.''

The yield on the two-year note fell 18 basis points as of 10:52 a.m. in Tokyo, according to bond broker Cantor Fitzgerald LP. The decline brought it to the lowest level since 2003. The price of the 2 percent security maturing February 2010 rose 11/32, or $3.44 per $1,000 face value, to 101 11/32. A basis point is 0.01 percentage point.

The two-year yield will fall to 1.2 percent by the end of March, said Nakamura, who correctly forecast last year's rally in Treasuries.

Futures contracts show there is a 52 percent chance the central bank will lower the 3 percent target to 2 percent tomorrow. The odds of a move that large were zero last week.