Treasury debt prices rallied to session highs Monday after Standard & Poor's warned that outlooks on large US banks are now predominantly negative, spurring a fresh round of safety bids for bonds.
The benchmark 10-year note's price was up 25/32 to 99-7/32. Its yield, which inversely with its price, fell to 3.97 percent, down from 4.07 percent late Friday.
The three major U.S. stock indexes were down as much as 1.9 percent in early afternoon trading.
The yield on 10-year government notes slipped below 4 percent.
The 10-year note's yield yield, which moves inversely with its price, fell to 3.97 percent, down from 4.07 percent late Friday. Its price rose 23/32.
Traders were bracing for a wave of top-tier economic data this week, which could support the view that the US economy is in a recession and prevent the Federal Reserve from raising interest rates this year, analysts said.
Earlier, UK mortgage lender Bradford & Bingley announced a slide in profitsand restructured a rescue plan.
The dismal news punished global bank shares and put downward pressure on the European and US equity markets.
"The worst of the credit market is over, but there are still a lot of problems," said T.J. Marta, fixed income strategist at RBC Capital Markets in New York.
The round of safe-haven bids in the Treasury market was an upbeat start to June following a poor May, during which inflation fears stemming from surging oil and food prices had pushed yields to their highest levels this year.
Despite market jitters, most inflation readings suggest price pressures have remained tame and oil prices have subsided from their record highs. US crude futureson Monday were down more than $1 at $126.25 a barrel.
This week's data will focus primarily on the factory and labor sectors, both of which have been deteriorating since the start of the year.
"The data have been all soft, but they are not clearly recessionary," RBC's Marta said.