NEW YORK -- U.S. Treasuries rallied Friday as concerns over the struggling subprime mortgage market and rising tensions with Iran sent investors scrambling for safety.
"People feel that financial risks are going up with the freefall in the subprime lending market," said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi.
Traders cited numerous other factors supporting bonds, including renewed interest from foreign central banks and relief over the relatively successful absorption of $31 billion in fresh debt.
The rebound left yields little changed on the week, but the one-session move was relatively large, with two-year notes surging 4/32 in price for a yield of 4.82 percent, down six basis points from Thursday.
Among other pillars of support for Treasuries, analysts cited an initial wave of the month-end buying that often boosts bonds, as well as the unwinding of hedges related to heavy issuance of commercial mortgage-backed debt.
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Concerns over a simmering rhetorical joust between the White House and Iran lurked ominously in the background, enhancing the perceived safe-haven allure of Treasuries.
Benchmark 10-year notes jumped 13/32 and were yielding 4.68 percent, down from 4.73 percent on Thursday. The 30-year bond spiked 25/32 higher for a yield of 4.78 percent.
Market strategists noted new stories shake-ups in the subprime market —trickier, riskier mortgage deals gone awry with the housing downturn — seemed to be creeping up in national newspapers every day, with troubling implications for major banks like HSBC.
Also making the headlines was a continued exchange of verbal jabs between top White House officials and Tehran, which was making investors anxious about the possibility that the war in Iraq might spread to neighboring Iran.
"There is a lot of nervousness around Iran and that things there could heat up," said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey.
Dealers cited an interview of Vice President Dick Cheney in an Australian newspaper as rattling nerves as Cheney seemed to back Senator John McCain's hawkish stance on Iran's nuclear program.
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