U.S. treasuries posted strong gains on Wednesday amid speculation that the Federal Reserve may cut interest rates following bad news about dropping home sales and a troubling earnings report from U.S. brokerage, Merrill Lynch, which reported a bigger than expected loss.

Factors pushing investors to seek safer investments included Merrill's $7.8 billion write-down due to losses in U.S. subprime loans and in complex instruments known as collateralized debt obligations. Another report casting a pall over the economy was a report indicating an 8 percent decline in existing home sales in September.

Investors sought out U.S. government debt, taking the two-year Treasury note's up 5/32 in price to a yield of 3.73 percent compared with 3.81 late yesterday. Bond prices and yields move inversely. The 10 -year Treasury bond price rose 17/32 sending its yield down to 4.347 percent.

Factors pushing investors to seek safer investments included Merrill's $7.8 billion write-down due to losses in U.S. subprime loans and in complex instruments known as collateralized debt obligations. Another report casting a pall over the economy was a report indicating an 8 percent decline in existing home sales in September.

Investors sought out U.S. government debt, taking the two-year Treasury note's up 5/32 in price to a yield of 3.73 percent compared with 3.81 late yesterday. Bond prices and yields move inversely. The 10 -year Treasury bond price rose 17/32 sending its yield down to 4.347 percent.

Investment Merrill Lynch