Anxiety about a slowing global economy stoked a rally in the U.S. bond market on Tuesday as safe-haven bids for low-risk government debt sent benchmark yields to their lowest level in 16 months.
Buying to close out previous bets on rising long-term U.S. yields stoked demand for 30-year Treasury bonds, pushing their yield below 3 percent for the first time since May 2013.
Concerns the euro zone would fall in recession intensified after a private gauge on German business, released earlier Tuesday, turned negative for the first time in nearly two years in October.
Adding to worries about the euro zone's biggest economy was the German Economy Ministry's cutting its forecasts on domestic growth to 1.2 percent in 2014 and 1.3 percent in 2015.
The struggling euro zone economy will probably raise pressure on European Central Bank President Mario Draghi and other policymakers to do more in the coming months, traders said.
"The greatest fear is Europe would fall into recession and there's nothing Draghi could do about it,'' said Tom di Galoma, head of fixed-income rates and credit trading at ED&F Man Capital in New York.
Troubles abroad have caused some U.S. Federal Reserve officials in recent days to express caution about the timing for the central bank to move away from its near-zero rate policy next year. Some of them, including Fed Vice Chairman Stanley Fischer, said it was still appropriate to reckon for a rate "lift-off" in mid-2015.
Some traders have turned pessimistic on their global outlook as a result of worries about the spreading of the Ebola virus and Islamic State-led fighting in the Middle East.
"I don't know how we could raise rates here,'' di Galoma said. "There is global angst."
Short-term U.S. interest rate futures rose as traders pared their bets that the Fed would raise short-term interest rates next year. They suggested traders were not fully pricing in a Fed rate increase until January 2016.
In the cash market, the yield on benchmark 10-year Treasury notes was last at 2.20 percent, down nearly 11 basis points from late on Friday. The yield fell below 2.2 percent earlier, which was the lowest since June 2013.
The 30-year Treasury bond's yield was at 2.95 percent, down about 6 basis points from late Friday after hitting a session low of below 2.93 percent, which was the lowest since May 2013.
The two-year yield, which is most sensitive to changes in traders' outlook on Fed policy, was 6 basis points lower than late Friday at 0.384 percent, the lowest since May.
The U.S. bond market was closed on Monday in observance of the Columbus Day holiday.