NEW YORK—Treasury prices rose slightly, as buyers were attracted by a sharp rise in yields in recent sessions.
The bond market also got a boost from safe-harbor demand after Moody's downgraded Ireland's sovereign credit ratings by five notches and consumer confidence in the U.K. fell to the lowest level since March 2009.
Extra support came from the Bank of England's Financial Stability Report which flagged policy makers' concern that the euro-zone's sovereign-debt crisis may spread, which could hurt demand for government securities. The U.K. gilts rallied sharply and the pound weakened against the dollar, euro and the yen.
"Negative news from Europe spurred flight-to-safety flows into Treasurys," said Jason Rogan, director of U.S. government trading in New York at Guggenheim Partners, adding that some foreign central banks and investment funds bought Treasurys with 10-year yield around 3.55%, providing attractive value.
The 10-year note recently was 6/32 higher to yield 3.394%, down from 3.473% late Thursday. The 30-year bond was 15/32 higher to yield 4.513%. Bond prices move inversely to their yields.
The demand helped the Treasury market extend a rally a day earlier, pushing the benchmark 10-year note's yield down by nearly 0.20 percentage points from the seven-month peak of 3.568% hit Thursday.
Yet traders warned that more selling may hit the market in the coming sessions as many dealers and investors cash out to lock in gains. As liquidity continues to dry up, it may exacerbate the price swings in the bond markets, they said.
Guggenheim's Mr. Rogan cautioned that trading is likely to be "choppy" over the next two weeks. The 10-year note's yield is likely to trade between 3.2% and 3.625% through the end of the year.
Volatility in the bond market has surged. Bank of America Merrill Lynch's MOVE index, a gauge of Treasury price swings, closed Wednesday at 125.20, the highest level since September 2009.
The index, released with a one-day lag, closed at 122.7 Thursday, still sharply higher from 98.2 on Dec 6.
The 10-year note's yield, a benchmark used to set U.S. consumer and corporate borrowing costs, has surged about one percentage point from this year's trough in early October.
A key driver of the recent selloff has been a string of better-than-forecast U.S. data. That, coupled with $858 billion in tax cuts heading to President Obama's desk and the Federal Reserve's firm commitment to pumping cash into the economy, has fueled optimism that the economic recovery could gather pace in the new year.
That in turn has pushed many investors out of safe-harbor Treasurys and into riskier assets.
