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Bonds Capitalize on Fear in Stock Market

Treasury debt prices rallied Friday, recovering from their worst rout in four years as recession fears and worries about the financial sector restored the allure of safe-haven government bonds.

Financial companies' shares fell swiftly in early afternoon trade, weighing on broader U.S. stock indexes.

The Treasury market also has fundamental support from the weak state of the U.S. economy, which generally leads investors to favor government bonds over riskier assets such as stocks.

Bond prices had tumbled Thursday after the government's $9 billion auction of 30-year bonds drew weak demand, but buyers began stepping in during Friday's Asian trading session to take advantage of beaten-down prices.

"There is that fear angle still out there," said David Coard, head of fixed-income sales and trading at the Williams Capital Group in New York.

"Add to that the fear of recession and that is what is helping to give Treasurys a better bid here."

The benchmark 10-year Treasury note's price, which moves inversely to its yield, rose 28/32 for a yield of 3.66 percent, down from 3.77 percent late Thursday.

Treasury gains accelerated as stock index declines steepened.

"I am not aware of anything other than equities (boosting Treasurys)," said Mary Ann Hurley, senior Treasurys trader in Seattle at brokerage D.A. Davidson. "People don't want to be short going into the weekend and the safe-haven bid is (for) Treasurys."

Investors got a reminder late Thursday of the poor state of the economy when San Francisco Federal Reserve Bank President Janet Yellen said she was "not confident" a recession can be avoided this year.

The comments generated a headwind for stocks while worries about more fallout in strained credit markets helped revive the nearly nonstop seven-month rally in government bonds.

The two-year Treasury note's price rose 8/32 for a yield of 1.95 percent, against 2.08 percent late Thursday.

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