Treasuries rise as stock drop prompts flight to safer assets

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Oct 22 : Treasuries rose as a plunge in emerging-market assets and expectations of a worsening global slowdown boosted demand for the safety of government debt.

US bonds headed for a fifth month of gains as Argentina's planned seizure of $29 billion of private pension funds stoked concern it is headed for its second default in a decade. Bank of England governor Mervyn King said the UK's worst banking crisis since World War I probably will push the country into recession. The dollar rose to an almost two-year high against the currencies of six trading partners. US stock futures fell.

“The weakness we saw in international equity markets and possibly in the open of the US market are leading to increased demand for Treasuries,” said Matthew Moore, an interest-rate strategist in New York at Banc of America Securities LLC, one of 17 primary dealers that trade directly with the Federal Reserve. “Dollar strength right now is helping the Treasury market.”

The odds on the Fed cutting its 1.5% target rate for overnight loans between banks by a half-percentage point next week rose to 86%, futures contracts on the Chicago Board of Trade showed, after Minneapolis Fed President Gary Stern said policy makers' actions haven't calmed financial markets. The extra yield bondholders demand to buy developing-nation debt rather than US Treasuries rose 38 basis points to 7.27 percentage points, the most since February 2003, according to JPMorgan Chase & Co.