By Deborah Levine, MarketWatch NEW YORK (MarketWatch) — Treasury prices rose Wednesday, pushing 10-year yields down from the highest levels in seven months, after a warning from Moody’s Investors Service about its rating on Spain weighed on stocks and commodities and lifted the appeal of U.S. debt’s relative safety. A report showing very tame consumer inflation and those high yields helped lure investors back to the Treasury market. Yields on 10-year Treasury notes (UST10Y 3.41, -0.07, -1.96%) , which move inversely to prices, fell 8 basis points to 3.41%. A basis point is one one-hundredth of a percentage point. Yields on 2-year notes (UST2YR 0.63, -0.02, -3.70%) declined 3 basis points to 0.63%. Thirty-year bond yields (UST30Y 4.51, -0.01, -0.29%) fell 4 basis points to 4.51%. The U.S. Labor Department said its index of consumer prices rose 0.1% last month. Excluding food and energy, core inflation rose 0.8% over the last year. Read about the CPI report. “It adds a little more lure for bonds because lower inflation means better bond valuations,” said Anthony Valeri, market strategist for LPL Financial. Moody’s Investors Service said earlier in the day that it was reviewing its Aa1 rating on Spanish sovereign debt for a possible downgrade, owing to funding worries hanging over the government and banks. Read more about Spain. “It’s a reminder that the European debt issue is going to continue to flare up,” Valeri said. “That gives a flight to quality push for the market.” Also Wednesday, the Federal Reserve Bank of New York’s index of manufacturing in its region improved in December, as did a reading on industrial production for November. Read more about the Empire State survey. On Tuesday, long-term debt saw one of the steepest selloffs this year after the Federal Reserve ended its last policy meeting of the year by standing pat on the size of its bond-purchase program and by holding interest rates steady at ultralow levels. Investors parsed the minimal changes to the Fed’s statement, with some deeming it more upbeat, while others called it dovish. But analysts noted that trading volumes were continuing to thin as the end of the year approaches and some of the major bond dealers stop taking major positions. Yields briefly touched 3.50% during Asian trading hours “before buying emerged from bottom fishers as the European trauma has re-emerged in Spain and Austria,” said John Spinello, a Treasurys strategist at Jefferies & Co. Also supporting bonds during the session, the Fed will resume its program of Treasury purchases and buy about $6 billion to $8 billion in debt maturing from 2014 to 2016. Since August, when the Fed said it would reinvest cash from maturing mortgage-related debt into Treasurys, it has bought $190 billion in U.S. debt, according to Morgan Stanley. Since announcing it would buy $600 billion on top of that, in November, the Fed has purchased $114 billion, including mortgage-related reinvestments.

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