TREASURIES-Bonds rally on refunding cash, 30-year auction

(Updates with late prices to include the 30-year bond gaining full point)

By John Parry

NEW YORK , May 8 (Reuters) - U.S. Treasury debt rallied on Thursday as traders allocated cash from a record amount of maturing federal government bonds into Treasuries and a solid 30-year bond auction bolstered market sentiment.

With the auction completed and the new supply absorbed, the 30-year bond extended gains in late trade to rise more than one full point.

A belief among some investors that the current calm in riskier markets may be short-lived triggered inflows into U.S. government securities at levels that many now consider cheap, following a sharp sell-off that has lifted 2-year Treasury note yields some 100 basis points since mid-March,

"Over the past couple of days there has been a return to Treasuries. Markets got a little ahead of themselves with a sell-off in the last few weeks," said Matthew Moore, economic strategist with Banc of America Securities in New York. "Yields got to levels that were attractive to investors."

Earlier this week, the benchmark 10-year Treasury note's yield <US10YT=RR>, which moves inversely to its price, rebounded briefly above 3.95 percent, the highest level since February, tempting some buyers back into the government bond market, a move that continued on Thursday.

"Real money is in and has found 10-year yields attractive at the 3.9 percent level," said Chris Rupkey, vice president and chief financial economist at Bank of Tokyo/Mitsubishi UFJ.

Late Thursday in New York, the benchmark 10-year note's price <US10YT=RR> traded up 23/32 for a yield of 3.78 percent.