NEW YORK—Treasury prices soared, pushing bond yields sharply lower across the board, as worries over the euro-zone's debt and economic problems fueled strong demand for safe-haven U.S. government securities.
The Treasury market extended the gains from late Thursday afternoon while gold, another safe-haven asset, hit a record high of $1,249.70 an ounce. U.S. equity market and crude-oil futures weakened while the euro dipped to the lowest level against the dollar since November 2008, extending its slide over the past few weeks.
"We are seeing very nervous markets with very nervous players," said Kevin Giddis, head of fixed-income sales, trading and research at Morgan Keegan Inc. in Memphis, Tenn. "The biggest fear for the markets is a crisis of confidence."
In recent trade, the 10-year note was 31/32 higher, with the yield down by 11.5 basis points to 3.450%. The 30-year bond was 1 30/32 higher, pushing down the yield by 11.8 basis points to 4.349%. The two-year note was up 4/32 and the yield fell 7.3 basis points to 0.782%. Bond yields move inversely to prices.
"Treasurys are benefiting from the risk aversion trade being back on," said Tom Porcelli, U.S. market economist at in New York at RBC Capital Markets. "We remain in a highly uncertain environment, until these head winds fade, we should not be surprised to see market sentiment shift to favoring the safety of Treasurys."
The worries cast doubt over the global economic outlook, overshadowing U.S. reports showing an unexpected rise in retail sales and improvement in consumer sentiment from the latest University of Michigan/Reuters survey.
"There is concern for Europe more than anything else," said Lou Brien, a market strategist with DRW Trading Group in Chicago.
Despite the nearly $1 trillion rescue package for debt-ridden euro-zone member countries, many investors question the long-term fiscal and economic outlook in several euro-zone countries, especially Greece. The belt-tightening needed there could hurt the global recovery, investors fear, despite evidence that developing economies continue to grow.
Both Spain and Portugal have now announced austerity measures to help reduce their budget deficits, but many investors now worry about the threat of civil strife in these countries, as well as in Greece.
"The really tough part will be implementing the austerity program—measures that are unpopular to say the least," said Mr. Giddis. "Only time will tell whether policy makers will be tough-minded enough to accomplish this heady goal."
Concern over the euro-zone's debt and economic problems is also reflected in the money market, with funding pressure after Monday's brief respite rising again over the past few sessions.
The three-month U.S. dollar interbank offered rate, the benchmark for interbank lending in the short-term funding market, rose to 0.44506% from Thursday's 0.43588%, with the euro Libor rate also higher at 0.62875% from Thursday's 0.62438%.
The three-month dollar Libor/OIS spread, a key gauge of money-market liquidity, widened to 22.3 basis points from 21.5 basis points Thursday. The U.S. two-year swap spread, a gauge of credit risk, was 1.5 basis points wider at 32.5 basis points.
The euro-zone debt crisis has spurred decent demand for this week's $78 billion new government debt sales, including a $38 billion three-year note sale, $24 billion 10-year note auction and $16 billion 30-year bond auction.
