(Adds comments, updates prices)
By Pedro Nicolaci da Costa
NEW YORK, July 20 U.S. Treasury debt prices
jumped on Friday as ongoing credit worries and weaker stocks
allowed bond bulls to test six-week lows in benchmark yields.
A mix of hard data and anecdotal evidence have underpinned
a week-long rally. Federal Reserve Chairman Ben Bernanke's
testimony, which referred extensively to the problem in the
subprime mortgages sector, only added fuel.
Benchmark 10-year notes US10YT=RR surged 20/32 and were
offering a yield of 4.96 percent, down six basis points on the
day and as many as 15 on the week. Yields were on track for
their biggest one-week drop since March.
The U.S. housing debacle now appeared to be affecting
investments overseas, with a subprime-heavy Australian hedge
fund running into trouble and Standard & Poor's downgrading a
series of European debt pools.
At the heart of the rally was the suspicion that rising
defaults on risky home loans would continue to ripple through
financial markets, possibly leading to a drying up of credit.
"We see serious risk that the much-ballyhooed global growth
party may come to an end," said William O'Donnell, head of U.S.
interest rate strategy at UBS.
The buying had now taken on a momentum of its own, with a
break below key yield levels encouraging more bidders.
"We have plowed through some of these technical levels and
there is probably a bit of panic buying," said Andrew Kreicher,
a trader at Deutsche Bank.
The data this week was broadly supportive of bonds as well.
Permits for residential buildings have collapsed to their
lowest in a decade, while home-builder sentiment continues to
At the margins, fresh measures from the Chinese government
to curb rapid economic growth may have helped Treasuries. While
tighter lending conditions globally tend to scare off
fixed-income investors, slower growth in China could hurt the
U.S. expansion, and therefore benefit government debt.
Strength was evident across the yield curve, with two-year
US2YT=RR notes soaring 5/32, offering a yield of 4.77
percent, its lowest in two months and down from 4.85 percent on
Equity markets provided another boost to government debt,
declining considerably on disappointing earnings from
Caterpillar and Google.
(Additional reporting by Chris Reese)