U.S. Treasury prices continued to rally on Friday, with benchmark yields hovering at their lowest in five weeks, on future Fed action and safe-haven demand stemming from worries about problems at Portugal's biggest listed bank.
During midday trading, benchmark 10-year Treasurys were up 6/32 in price with a yield around 2.51 percent, down nearly 2 basis points from late Thursday.
The 30-year bond was more than 15/32 higher in price, yielding 3.34 percent, down 2 basis points from Thursday, while the yield hovered around 0.45 percent.
Appetite for Treasurys has been stoked by the minutes of the U.S. Federal Reserve's June policy meeting released on Wednesday, which hinted that the central bank is likely to cling to its near zero interest rate policy until the second half of 2015.
Looking ahead, traders await more clues on when the U.S. central bank will raise interest rates when Fed Chair Janet Yellen testifies on the economy before Congress next Tuesday and Wednesday.
Benchmark yields were on track to fall for a fifth straight session, matching a streak last seen in March, as anxious investors scrambled for low-risk bonds and unloaded equities, knocking stock indexes from record highs.
"I think this downward trend of interest rates is short-lived," said Alan Skrainka, chief investment officer at Cornerstone Wealth Management. "The economy is stronger than most people believe."
Worries that Banco Espirito Santo's problems may kindle another banking crisis in Europe receded a tad after the Portuguese bank released a statement that said it had adequate capital to protect against any losses. The bank has been under scrutiny due to its link to a web of companies in the Espirito Santo business empire.
Meanwhile, Israeli air strikes continued for a fourth day on the Gaza Strip, stoking worries about tension spreading to the rest of the region.
These overseas developments have overshadowed upbeat news on the U.S. economy, analysts and traders said.
Despite last week's strong June payrolls reading, the 10-year yield has declined nearly 13 basis points this week, while two-yield has retreated from a 10-month high set on Tuesday.
While bidding on this week's $61 billion in fixed-rate government debt was relatively weak, traders say appetite for Treasurys should remain solid as they are yielding more than their European and Japanese counterparts.
"There is demand for long-dated U.S. paper because there's not so much high-quality supply out there,'' said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York.
—By Reuters. CNBC.com contributed to this report.