U.S. Treasury prices rose for a second day Thursday as fear about Europe's shaky financial situation returned to the market.
Traders questioned the Spanish government's ability to raise money in the bond market a day after an auction of new Spanish debt securities failed to garner much interest. Traders sold bonds issued by Spain, Italy and other European nations perceived as having too much debt. Their borrowing costs rose.
The price of the 10-year Treasury note rose 40.6 cents for every $100 invested, pushing its yield down to 2.18 percent as of 4 p.m. EDT from 2.23 percent late Wednesday.
Concerns about the future of the euro weighed on markets for much of the past two years, but subsided in recent months. The U.S. economy is stronger. The European Central Bank injected cash into the financial system, a move that appeared to defuse the threat of a financial crisis.
Spain's weak auction early Wednesday rekindled fears that a big country might default, wreaking havoc on world markets. If bond investors lose faith in Spain, its borrowing costs could climb to a level where it would be forced to default. Europe's emergency fund isn't big enough to bail out Spain.
There were more signs Thursday that investors fear that outcome. The yield on Spain's 10-year note spiked to 5.74 percent. It had traded at 5.27 percent Monday. Owners of Italian and French bonds also pounded the sell button. Italy's 10-year yield surged to 5.43 percent, from 4.99 percent on Monday.
A sharp decline in U.S. and world stock markets Wednesday also freed up money for low-risk investments such as Treasurys. U.S. stocks were nearly flat on Thursday ahead of the March U.S. jobs report, which is due out on Friday.
Treasury prices had plunged earlier in the week after the Federal Reserve hinted that it is unlikely to begin another round of bond-buying to boost the economy. Bond-buying by the Fed would add to demand for Treasurys.
Nervousness about Europe and heavy selling in the stock market boosted demand for Treasurys, pushing yields back down.
The price of the 30-year Treasury bond rose 62.5 cents for every $100 invested, reducing its yield to 3.32 percent from 3.36 percent late Wednesday.
The yield on the two-year Treasury note was nearly unchanged at 0.35 percent. The yield on the three-month Treasury bill fell to 0.06 percent from 0.08 percent late Wednesday.
Daniel Wagner can be reached at www.twitter.com/wagnerreports.