BY MarketWatch

Bond yields move inversely to prices.
On Tuesday, Federal Reserve policymakers delivered on an inter-meeting rate cut of fully three quarters of a percentage point, a move aimed at averting recession in the U.S. economy.

But at least some economists and analysts were openly speculating about the effectiveness of such a move. See Capitol Report.

"Investors, even after the aggressive action by the Fed, aren't convinced that what they are doing is enough," said Kevin Giddis, managing director of fixed-income trading at Morgan Keegan & Co., in a research note.

Short-term bonds benefit the most from rate cuts, as their yield move in sync with the Fed's key rate. Long-term bonds, however, can fall after rate cuts if the market believes the boost to the economy will stoke inflationary pressures. Inflation erodes the value of fixed-income assets, such as bonds.

So far, bonds on the long end have rallied over Tuesday and Wednesday.

4-week T-bills auction sees strong demand
The U.S. Treasury's auction of $15 billion of 4-week bills Wednesday was "hugely strong, helped by massive flight to safety flows as stocks sink, and fear grips the markets," according to analysts at Action Economics.

The bid-to-cover ratio, which measures bids received to bids tendered, rose to 3.97, above 3.93 last week for a smaller issue of $9 billion.

The indirect bid, a category that includes foreign buyers, was 16.6%, topping last week's 14.1%, though still far short of 35.5% seen in late August when the credit crisis and subprime fears were peaking. The bills were awarded at 1.75%, 133 basis points below last week's 3.08% following the U.S. Federal Reserve's 75-basis point cut Tuesday.

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