Economic concerns drive interest rates lower

(AP) — Interest rates fell in the bond market Tuesday as concerns about the economy increased demand for the safety of government debt.

The leap in bond prices came as a list of disappointing news touched off questions about how fast a recovery will occur. Aluminum producer Alcoa Inc. posted quarterly results that missed expectations, while China took steps to curb lending in hopes of preventing its economy from growing too quickly.

Meanwhile, the European Union said Greece's government budget figures aren't reliable. Investors have been concerned that rising debt loads in many countries could rock credit markets if a country were to default.

Growing anxiety in the bond market caused a narrowing of the difference between short- and long-term interest rates, known as the yield curve.

Long-term Treasurys that had lagged the short end of the market are becoming more popular as investors seek safety. The yield on the benchmark 10-year Treasury note, which is linked to interest rates for mortgages and other consumer loans, fell sharply to 3.72 percent in late trading from 3.82 percent late Monday. Its price rose 27/32 to 97 7/32.

The yield on the 30-year bond fell to 4.62 percent from 4.73 percent as its price jumped 1 24/32 to 96 1/32.

Kim Rupert, managing director of global fixed income analysis at Action Economics near San Francisco, said the confluence of news brought a reminder that the economic rebound will be bumpy.

"We never really should have expected a one-way trip higher for the economy," she said. The latest news "just added to concerns that the recovery might not be all that it's chopped up to be."

But investors also showed a good appetite for shorter maturities.

Strong demand at a Treasury Department sale of $40 billion in three-year notes illustrated how concerned some investors remain about the economy.

The bid-to-cover ratio, a measure of demand, came in 2.98, even with an auction in December.

In other trading, the yield on the two-year Treasury fell to 0.91 percent from 0.95 percent, while its price advanced 3/32 to 100 5/32.

The yield on the three-month T-bill, considered one of the safest investments, was flat at 0.03 percent. Its discount rate stood at 0.04 percent.