U.S. Treasury debt prices rose Monday as stock losses inspired by a weaker financial sector and fresh worries about credit shortages rekindled a bid for safe-haven government bonds.
Citigroup, which said it would suspend stock buybacks after a 57 percent drop in third-quarter profit, led stocks lower. In afternoon trade, the Dow Jones industrial average was down about 1.1 percent, at 13,944.64.
The possibility that record high oil prices could crimp consumer and business spending also hurt stocks and appeared supportive for bonds. That factor overwhelmed the influence of stronger-than-expected regional manufacturing data released by the New York Federal Reserve early in the trading session.
"People refocused on the potential for economic weakness," said Drew Matus, senior financial economist at Lehman Brothers.
"People moved away from looking at the economic data coming out of the public sector and started to look at private sector (results), which didn't hold up as well," he said.
In mid-afternoon trade, the benchmark 10-year note was up 3/32 in price, its yield at 4.677 percent, versus 4.69 percent late Friday.
Adding to that uncertainty was an announcement that major banks, including Citigroup, were assembling a fund to support the struggling asset-backed commercial paper market.
Citigroup, JP Morgan Chase and Bank of America said they and several other financial institutions had reached agreement to pool money to prevent funds known as structured investment vehicles from having to dump assets into the market.
While such a plan could have reassured investors, it also put the credit crunch back on the radar screen, analysts said.
"People are a little suspicious," said Chris Rupkey, senior financial economist at Bank of Tokyo/Mitsubishi. "They are concerned about the credit crisis again and feel it could be a bigger problem than they first thought. It's still a major question for the market. That sent stocks down and bonds up."
After yields on benchmark 10-year notes rose to two-month highs early in session on the New York Fed's manufacturing report, they did an about-face and eased as stock prices fell.
Bond yields move in the opposite direction from bond prices.
Two-year notes , which respond closely to expectations for Fed interest rate moves, traded up 1/32 in price for a yield of 4.21 percent, versus 4.24 percent late on Friday.