U.S. government bonds rallied on Tuesday, as stocks tumbled on fresh concerns over the health of credit markets and the troubled housing sector deteriorated further.
Benchmark yields hit five-month lows as investors dumped stocks and bought Treasuries in the wake of reports showing U.S. house prices suffered their worst decline in at least 20 years in the second quarter, while consumer sentiment took its sharpest plunge in nearly two years during August.
Bonds extended gains only marginally after the release of minutes from the Federal Reserve's Aug. 7 policy meeting.
The publication reflected concern over financial markets turmoil and inflation but did not deal with the volatility that led the Fed to cut the discount rate 10 days later.
"The Fed is still straddling between worries about inflation and the financial markets," said Frank Hsu, director of global fixed income, Fimat in New York. "It looks like they realize both sides are serious. They're walking a very tight line."
Benchmark 10-year notes rose 8/32 in price, pushing yields down to 4.54 percent from 4.57 percent late Monday. The yield fell as far as 4.53 percent, its lowest since late March.