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Bonds: US Treasurys rise as confidence drops

Bonds rise as interest rates fall. Will Federal Reserve buy more bonds?

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Traders react in the 10-Year Treasury Bill Options Pit at the CME Group in Chicago last year in August. The Federal Reserve on Tuesday may buy long-term bonds in order to push down long-term inflation rates.

John Gress/Reuters/File

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Treasury prices rose Tuesday after consumers' confidence in the economy plunged to the worst level since April 2009.

The Conference Board's index of consumer confidence sank to 44.5 in August from 59.2 in July. That's the lowest it has been since two months before the recession ended.

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The plunge reflects Americans' jitters during a month of wild stock market swings, instability in the European financial system and a weakening global economy. Consumers' views are crucial for the U.S. economy because their spending accounts for 70 percent of all economic activity.

Later Tuesday, the Federal Reserve signaled that it might act more aggressively to boost the economy. One option is a third round of bond-buying aimed at lowering long-term interest rates.

During the Aug. 9 meeting of the Fed's main policy-making group, some officials pressed for more aggressive action. They settled for a pledge to keep short-term rates near zero for two more years. The committee agreed to spend an extra day discussing its next steps at its September meeting.

Interest rates for loans such as mortgages tend to track the yield on the 10-year Treasury note. The Fed can try to lower rates by increasing demand for notes, pushing their prices higher. Yields on bonds fall as their prices rise.

Lower rates on consumer loans have done little to increase spending by consumers or revive the weak housing market. Higher rates would make it even harder to get loans. That might kill what little momentum the economy has.

In afternoon trading, the 10-year Treasury note rose 53 cents for every $100 invested. Its yield fell to 2.19 percent from 2.24 percent late Monday.

The price of the 30-year bond rose $1.16 for every $100 invested. Its yield fell to 3.53 percent from 3.61 percent.

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The yield on the two-year note fell to 0.19 percent from 0.21 percent.

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