NEW YORK (Dow Jones)--Treasury bonds got a lift Tuesday from an unexpected decline in U.S. consumer sentiment toward the economic outlook. The May consumer confidence index from the Conference Board fell to 64.9 from 68.7 in April. Economists had expected the index to rise to 70.3. The report came at a time when concerns have arisen about the strength of the U.S. economic recovery, and the ongoing euro-zone sovereign-debt crisis injected an additional layer of uncertainty over the growth outlook. In recent trade, the benchmark 10-year note was 4/32 higher to yield 1.731%. Bond prices move inversely to their yields. The 30-year bond was 2/32 higher to yield 2.842%. The two-year note was flat to yield 0.289%. Bond prices were already higher before the data, boosted by concerns over Spain's banking and regional finances. While strength in the U.S. stock market limited Treasury prices' advance, the moderate gain in the safe-harbor market reflected worries that pumping in more cash to shore up Spain's struggling banking system would further increase the debt burden of the central government. This, some analysts warned, raised the specter that Spain might be the next in line to ask for an external bailout such as Greece, Ireland and Portugal have done since the euro zone's sovereign-debt crisis flared up more than two years ago. Government officials in Spain have consistently rejected the prospects that Spain needs a bailout. But anxiety was seen in the recent selloff in the nation's stocks and bonds. The 10-year Spanish government bond yield traded above 6.4% Tuesday, and a level above 6% has raised questions about the sustainability of borrowing from markets in the longer term. The Spanish stock market has been one of the worst-performing equity markets over the past few weeks, and Tuesday it was down more than 2%. "It seems like they're starting to undertake more and more of both the banking sector and the regions' debts," said Anthony Cronin, a Treasury bond trader at Societe Generale SA. "At some point, they won't be able to go to the market to raise this debt without assistance" from the European Union and the International Monetary Fund. The Spanish government last week unveiled a plan for a EUR19 billion bailout for one of the country's biggest lenders, Bankia. It also emerged that three Spanish savings banks are close to a tie-up that will create a lender with EUR120 billion in assets, the latest in a long line of mergers in the country's battered financial sector. The developments in Spain put a dent on some solace regarding Greece, where recent polls showed a pro-bailout party pulling ahead against the leftist party that has threatened to throw away austerity measures demanded by the EU and IMF in exchange for more funding for Greece. Still, concerns remain whether the June 17 election could produce a stable government with a strong commitment to belt-tightening. Without that, investors still face the risk of a disorderly default by Greece and its departure from the euro zone. -By Min Zeng, Dow Jones Newswires; 212-416-2229; min.zeng@dowjones.com

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