U.S. Notes Have Longest Rally in 5 Years on Demand for Safety

Two-year Treasuries headed for their longest weekly rally in five years as tumbling stocks and credit-market losses increased demand for the relative safety of government debt.

The yield fell below 3 percent for the first time since December 2004, and the 10-year rate declined to less than 4 percent, the lowest since 2005. The dollar slid to a record against the euro and crude oil rallied to $99 a barrel, spurring expectations among traders that the Federal Reserve will cut its benchmark interest rate next month to support economic growth.

``You have the U.S. economy turning over, led by housing,'' said Adam MacKillop, who trades U.S. bonds at Barclays Capital Japan in Tokyo. ``You've got credit concerns. Equities are under pressure. This is why we had such a massive rally.''

Yields on the 3 5/8 percent Treasury due in October 2009 rose 3 basis points to 3.03 percent as of 9:34 a.m. in London, according to bond broker Cantor Fitzgerald LP. The price fell 1/32, or 31 cents per $1,000 face amount, to 101 3/32.

The yield declined 32 basis points since Nov. 16, making this the sixth winning week. A basis point equals 0.01 percentage point.

The last time notes had such a long run of gains was in the period ended Oct. 4, 2002. The Fed was in the process of cutting its target for overnight loans between banks, taking the rate to a 45-year low of 1 percent by June 2003.
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