TOKYO, Aug 23 (Reuters) – U.S. Treasuries plunged in Asia on Thursday, pushing up the two-year yield more than 10 basis points at one point on growing confidence that a credit squeeze sparked by turmoil in the U.S. subprime mortgage market may be turning a corner.
Dealers said that Countrywide Financial Corp's (CFC.N: Quote, Profile, Research) announcement on Wednesday that it received a $2 billion injection from Bank of America Corp (BAC.N: Quote, Profile, Research) to help the largest U.S. mortgage lender shore up its finances showed that firms are taking steps to deal with the subprime meltdown from past months.
A 2.5 percent jump in the Nikkei stocks average (.N225: Quote, Profile, Research) and broad gains in other Asian markets, which followed Wall Street higher, also prompted investors to dump long debt positions in what some dealers in Tokyo described as "panic selling".
"It's still too early to say for sure, but it seems that steps are being taken to resolve the subprime issue," said Ryuichi Shinohara, managing director of high-grade fixed income at Banc of America Securities.
"So we're seeing an unwinding of positions that were taken to hedge against the crisis," he said.
Given that financial markets are regaining their composure following a steep sell-off in the past week on worries about tighter credit, some investors have begun to doubt the possibility of an imminent cut in the Federal Reserve's benchmark rate.
September 10-year note futures (TYv1: Quote, Profile, Research) dropped 13.5/32 to 108-13.5/32, pulling further away from a five-month high touched earlier in the week.
The two-year yield <US2YT=RR> slumped 4/32 in price to yield 4.267 percent, up around 7.5 basis points from 4.192 percent late on Wednesday. In early Asian trade, it shot up to as high as 4.317 percent.
The benchmark 10-year yield <US10YT=RR> fell 8/32 in price to yield 4.681 percent, up around two basis points from 4.662 percent late in New York.
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