Treasurys rally amid concern about Dubai debt

posted: 2 HOURS 28 MINUTES AGO

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NEW YORK -Treasury prices rallied in holiday-shortened trading Friday as investors flocked to the safety of government-backed debt amid concern about financial trouble in Dubai.

Investors worried a global economic recovery would be hindered as a government investment fund, known as Dubai World, in the Middle Eastern city-state of Dubai said it would have to defer payments on $60 billion in debt by at least six months.

Renewed worries about the health of the financial sector globally had investors pouring out of stocks and buying up safe-haven investments like Treasury bonds. Typically investors buy up U.S. government-debt, considered one of the world's safest investments, during signs of economic problems.

The price on the 10-year Treasury note, considered a benchmark for many consumer loans, rose 17/32 to 101 12/32. That pushed its yield down to 3.21 percent from 3.28 percent late Wednesday. The bond market was closed Thursday for Thanksgiving and was opened for an abbreviated session Friday.

The Treasury market rally came as investors sold off riskier investments like stocks because of the Dubai concern. The Dow Jones industrial average index dropped 1.5 percent, while the broader Standard & Poor's 500 index declined 1.7 percent.

Friday's gains followed a rise in Treasury prices earlier in the week when the government successfully auctioned two-year, five-year and seven-year notes. Demand for the $42 billion in five-year notes auctioned on Tuesday was the highest for any sale of notes with a similar maturity since 2007.

The price of the five-year note rose 12/32 to 100 14/32, pushing its yield down to 2.03 percent from 2.11 percent.

In other trading, the price on the two-year note rose 4/32 to 100 4/32. Its yield fell to 0.69 percent from 0.75 percent.

The price of the 30-year bond rose 18/32 to 102 27/32. Its yield dipped to 4.21 percent from 4.24 percent.

The yield for three-month T-bills fell to 0.01 percent from 0.03 percent. The discount rate was 0.03 percent.

The cost of borrowing between banks rose fractionally. The British Bankers' Association said the rate on three-month loans in dollars — the London Interbank Offered Rate, or Libor — increased to 0.2556 percent from 0.2544 percent.

2009-11-27 16:51:39