reasurys rally again on credit fears

Treasury prices rallied yet again Friday on amplified worries that global banks may take more massive writedowns for their exposure to shaky credit markets.

The credit markets have been in a perilous state since August; souring home loans made to borrowers with weak credit are creating havoc for the banks and investors who bought securities backed by the bad mortgages. Although this has caused investors to shun many types of corporate bonds, it also has sparked numerous rallies for Treasurys and some other types of government-backed debt.

"Unless you are trading Treasurys, spreads have been widened on your fixed-income investments," said Kevin Giddis, managing director of fixed-income at Morgan Keegan & Co.

A spread represents the difference between the yield on a corporate bond and the yield on a government note of comparable maturity. Wider spreads speak to investor uneasiness, while tighter spreads are an indication of confidence.

The bond market closed one hour early at 2 p.m. EST Friday ahead of Veteran's Day and will be closed for observance of the holiday on Monday.

The benchmark 10-year Treasury note rose 17/32 to 100 7/32 with a yield of 4.22 percent, down from 4.28 percent in late trade Thursday.

The 30-year note advanced 1 3/32 to 106 11/32 with a yield of 4.63 percent, down from 4.66 percent.

The 2-year note gained 5/32 to 100 13/32 with a yield of 3.41 percent, down from 3.48 percent.

After hours trade had some impact on yields. At 5:30 p.m. the 10-year yield was 4.22 percent, unchanged from the official 3 p.m. close, while the 30-year yield fell to 4.61 percent from 4.63 percent. The 2-year yield rose to 3.42 percent from 3.41 percent.

The 3-month yield dropped to 3.27 percent from 3.40 percent Thursday as the discount rate fell to 3.19 percent from 3.32 percent.

Risk aversion plays were back in force on Friday, causing heavy losses for stocks and new gains for Treasurys, after Wachovia Corp. revealed it may take a $1.1 billion writedown for October alone. The writedown would account for the declining value of securities backed by risky collateral. Wachovia also sharply increased its loan loss provisions.

Barclays PLC has denied rumors it soon will take a $10 billion writedown for bad credit. But in the current environment, even denied rumors are exerting influence.

In Japan, meanwhile, the Nikkei newspaper reported that Mizuho Financial Group Inc.'s Mizuho Securities Co. is being hit by large subprime losses.

All these reports follow news that Citigroup Inc. may write down an additional $11 billion for its subprime-related losses. Merrill Lynch & Co. Inc. has written down $8.4 billion and Morgan Stanley has taken a $3.7 billion writedown for similar losses.

The subprime worries took a toll this week on even the safest parts of the corporate bond market, which last month showed signs of stabilizing. The constant assault of bad news about poor-quality debt made investors shun even higher-rated offerings, causing Hyundai Motor Co and at least five other borrowers to halt bond sales.

The University of Michigan on Friday issued the preliminary reading of its consumer sentiment survey showing a decline to 75.0 in November from 80.9 in October. The result was below analysts' estimates. Consumers have been one of the engines of the economy, and if their spending slows significantly the overall economy will suffer, too.

However, Action Economics said on its Web site that "the bond market shrugged off University of Michigan sentiment weakness, which merely added one more bleak fact to the market maelstrom."

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