Fears about the weakness in the U.S. economy and Europe's financial crisis caused Treasury prices to rally on Tuesday, sending long-term interest rates lower. Traders dumped stocks in search of lower-risk investments.
The yield on the 10-year Treasury note traded below 2 percent, near the lowest point on record, as strong demand for U.S. government debt boosted Treasury prices.
Analysts said the rush into Treasurys reflects a deluge of bad economic news.
"Concerns about another recession are the highest we've seen since we got out of the last recession," said Jason Rogan, director of U.S. Treasury trading at Guggenheim Capital Markets in New York.
Rogan said the economy might be in for a long period of very slow growth, or it might begin to shrink. Either way, he said, traders want the safest investments they can find. U.S. Treasurys fit the bill.
The ultra-low yield means demand for Treasurys is sharply higher. Bond yields fall when their prices rise.
When demand is high for debt issued by the U.S. Treasury, the government can find lenders easily and pay relatively low interest rates. When buyers are scarce, the government must pay higher rates to make the investments more attractive.
Treasurys were plenty attractive on Tuesday as global stock markets fell. The Dow Jones industrial average lost as many as 307 points in morning trading, but recouped much of those losses and closed down 100 points. European markets had plunged on Monday, sending the Stoxx 600 index 4.1 percent lower. U.S. markets were closed Monday for the Labor Day holiday.
Other news from the U.S. and Europe has pushed traders toward safer bets:
_ The U.S. economy is barely growing. The government reported Friday that job growth was zero last month.
_ Traders are increasingly concerned about the possibility that Greece will default on its financial obligations. That threatens the other nations that use the euro as their currency.
_ Growth in emerging economies has slowed. Europe's economy barely grew in the second quarter.
_ U.S. bank stocks have plunged on concerns about legal costs related to mortgage-backed securities they sold to investors that later lost value during the housing crisis.
_ Bad economic news has many traders convinced that the Federal Reserve will intervene again in the market for Treasurys. One possibility is selling shorter-term Treasurys and using the proceeds to buy longer-dated investments. Some traders are buying 10-year notes and 30-year bonds in anticipation of just such a move by the Fed.
"There's clearly a lot of fear out there, starting in Europe and spreading into the U.S. economy," Rogan said. He said there is little economic news to feel optimistic about.
The yield on the 10-year note was 1.97 percent at 4:30 p.m. EST, compared with 2 percent late Friday. Its price rose 12.5 cents for every $100 invested.
The yield fell as low as 1.91 percent late Monday, the lowest yield on record since the Federal Reserve Bank of St. Louis began keeping daily records in 1962.
The yield on the 30-year bond fell to 3.26 percent from 3.30 percent late Friday. Its price rose 81 cents for every $100 invested.
The yield on the three-month T-Bill fell to 0.2 percent from 0.3 percent late Friday. Its discount wasn't available.