Treasury debt prices rose on Friday, taking benchmark yields to the lowest in at least 60 years as investors looked for a safe haven on revived worries a European debt crisis could have a significant global impact.
Stocks plunged on Friday, losing over 2.5 percent and bolstering the safe-haven allure of U.S. government debt, with few investors looking to go into the weekend short Treasuries due to the uncertainty surrounding the European debt crisis.
The worries over Europe were sparked by the planned resignation of European Central Bank (ECB) Executive Board Member Juergen Stark. The ECB confirmed a Reuters report that said Stark was quitting because of a conflict over the central bank's bond buying program.
The Stark resignation just kind of raises an eyebrow at a time when there's already concerns about what's going to happen next, said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
A debt swap meant to help Greece avoid default and win time to repair its tattered public finances hung in the balance Friday, with expectations of take-up by private creditors slipping amid fierce European pressure on Athens.
There is a real danger that a European default or bank failure would lead to a global banking crisis akin to that seen after the fall of Lehman Brothers, said Paul Dales, U.S. economist at Capital Economics in Toronto.
Benchmark 10-year notes were trading 19/32 higher in price to yield 1.91 percent, down from 1.98 percent late Thursday. Benchmark yields touched 1.896 percent, marking the lowest since at least World War II.
Stocks certainly took a brutal push there and we've had an awful lot of buying accumulate this morning on all of the bad news about Europe, so when we come in for a little more buying (of Treasuries) this morning there's just nowhere for prices to go -- they've got to keep going up, said Jim Vogel, is head of fixed income research at FTN Financial in Memphis.
The drop in yields stirred some concerns about Treasury debt auctions next week.
The Treasury will sell $32 billion of three-year notes, $21 billion of reopened 10-year notes and $13 billion of reopened 30-year bonds next Monday, Tuesday and Wednesday.
Some investors felt the Treasury may have a difficult time successfully auctioning the debt with yields at current low levels.
Longer-dated Treasuries have found support in recent days on expectations the Fed could announce a bond purchase program, which the markets have dubbed Operation Twist, at the conclusion of its policy meeting September 20-21.
A speech by Fed Chairman Ben Bernanke Thursday was generally seen as leaving the door open to the possibility of Operation Twist arriving soon. Bernanke said the U.S. central bank would spare no effort to boost weak growth.
Thirty-year Treasury bonds were trading 1-10/32 higher in price to yield 3.25 percent, down from 3.31 percent late Thursday.
(Additional reporting by Emily Flitter; editing by Andrew Hay)