U.S. Treasurys prices rose Friday for a second day, as jitters about the future of financial companies had investors turning to lower-risk assets like government debt.
Along with the safe-haven bid, investors concluded that a hefty gain in U.S. payrolls last month and other signs of economic strength were only fleeting, and expectations increased that the Federal Reserve will continue to cut interest rates to prop up economic growth.
"If people are really concerned about all of this stuff, then bonds are the safe haven," said Adam Brown, co-head of U.S. Treasury trading at Barclays Capital in New York.
The benchmark 10-year note traded 4/32 higher in price for a yield of 4.33 percent from 4.35 percent late Thursday, while the two-year note traded up 4/32 for a yield of 3.69 percent from 3.76 percent.
Earlier in the day, the yield of the 10-year note slipped to its lowest since October 2005 and the two-year yield to its lowest since July 2005. Bond yields move inversely to prices.
Bond prices surged Thursday as stocks plummeted, more than erasing the previous day's bond losses and stock gains after the Fed cut the recommended benchmark federal funds rate for overnight lending between banks by 25 basis points to 4.50 percent.
"Everybody is focused on financial market problems," said Kevin Logan, economist at Dresdner Kleinwort Wasserstein in New York, adding "the stock market is worried about potentially bad news emanating from the financial sector and the bond market reflects that as well."
Bonds did trade lower briefly Friday morning after unexpectedly robust jobs data bolstered stock markets and initially dimmed expectations that the Fed would cut rates in the coming months.
U.S. employers added 166,000 jobs in October, more than double analysts' median forecast and the most monthly hirings since May when they rose 188,000, according to the Labor Department. But the September reading was revised down to a 96,000 increase from an initially reported 110,000 gain.
Another government report showed a 0.2 percent September rise in factory orders, compared with an expected 0.5 percent decline.
Worries about the potential for further economic fallout from the credit crisis soon took precedence over the jobs news, however, and bonds turned higher with rising expectations theFed will have to further ease monetary policy.
U.S. short-term rate futures on Friday afternoon were implying a 70 percent chance that the Fed will cut rates by a quarter of a percentage point at a policy meeting in December.
Futures Thursday had implied a 66 percent chance of such a cut, and Wednesday they implied a 42 percent chance.
Five-year debt traded up 7/32 to yield 3.96 percent from 4.01 percent late Thursday, while the 30-year bond traded up 10/32 to yield 4.62 percent from 4.64 percent.