Treasury debt prices rose to session highs Friday on an accelerating safe-haven bid out of stocks, after the Dow Jones industrial average extended its slide to trade down 20 percent from October's record close.
The benchmark 10-year Treasury note's price, which moves inversely to its yield, rose 16/32 for a yield of 3.97 percent, versus 4.03 percent late Thursday.
Bonds were also boosted by an inflation reading benign enough so that investors were thinking the Federal Reserve may not have to raise interest rates soon to combat price pressure.
But the overall momentum for bonds was set by falling stocks, with continued worries of more credit losses in the financial sector.
"The equity market is really telling the story -- it is weak and it is getting weaker, and that is helping bonds," said James Caron, co-head of global rates research at Morgan Stanley in New York.
The government said Friday the core personal consumption expenditures price index, one of the barometers of inflation, for May rose 0.1 percent, which was below economists' forecasts for an increase of 0.2 percent.
"To some extent that provides the Fed with some relief -- they have an inflation problem but it does not necessarily put the onus on them to act immediately," said Maxwell Clark, chief U.S. economist at IDEAglobal in New York.
Investors had been boosting expectations that the Fed will have to raise interest rates later this year to fight inflation due to soaring food and energy costs. Indeed, the central bank indicated in a statement this week that price pressures are becoming increasingly worrisome.
But others believe expectations of a rate increase have been overblown, and the Fed will not be able to tighten monetary policy any time soon as it would further damage an already shaky economy.
In other data on Friday, the Reuters/University of Michigan Surveys of Consumers final index of confidence for June hit another 28-year low in June, falling to 56.4 from May's reading of 59.8.
Five-year Treasury notes were trading 7/32 higher in price for a yield of 3.36 percent from 3.39 percent late Thursday, while the 30-year bond was 18/32 higher for a yield of 4.56 percent from 4.60 percent.