US Treasury prices rose on Friday as renewed uncertainty over the fate of debt-laden conglomerate Dubai World and China's move to curb lending boosted the appeal of safe government debt. Investors shifted to Treasury bonds after Dubai debt sold off sharply as investors fretted over a lack of clarity on the debt restructuring of government-backed Dubai World.
China's move to increase bank reserve requirements also fed the shift to bonds and away from commodities and equities on worries that monetary tightening could sap global demand while the recovery is still fragile. "There's a flight-to-quality bid today with everything that's going on with Dubai and after China surprised us with the bank restrictions," said James Combias, head of government bond trading with Mizuho Securities USA. China's announcement comes on the heels of a similar increase last month.
Weaker-than-forecast reports on consumer sentiment and business inventories contributed to the weak action in riskier assets. The benchmark 10-year Treasury note rose 8/32 to yield 3.69 percent, down from 3.73 percent Thursday. The 30-year Treasury bond was up 11/32 to yield 4.65 percent, down from 4.67 percent on Thursday. Adding to the worry about sovereign debt was news that Greece's economy shrank more than feared last quarter, increasing doubts about its ability to resolve its debt crisis.
A European Union government source said meetings of the region's finance ministers next week were unlikely to put together an aid package for Greece, suggesting governments were still unable to decide how to prevent the crisis from hurting financial markets' faith in the euro zone. "The market is a little frustrated right now at the lack of a resolution (on Greece)," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.