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U.S. bonds gain on Portugal's pain

By Annalyn Censky, staff reporter

NEW YORK (CNNMoney.com) -- U.S. debt prices continued to rally Wednesday, after Moody's said it was considering cutting Portugal's credit rating one to two notches.

Bond investors also welcomed the news that the government will issue fewer new U.S. Treasurys than it did last quarter, due to a recovering economy.

Click the chart for current prices and yields.

What prices are doing: The benchmark 10-year note rose 14/32 to 100-22/32, pushing the yield down to 3.55%. Bond prices and yields move in opposite directions.

The 30-year bond rose 15/32 to 103-30/32 with a 4.39% yield. The 2-year note rose to 100-5/32 with a 0.88% yield. The 5-year note gained 12/32 to 100-30/32, yielding 2.3%.

What's moving the market: Moody's Investors Service announced Wednesday that it is considering cutting Portugal's credit rating to reflect its growing deficit.

The news fanned the flames on already wary world stock markets, most of which have been falling since Tuesday on fears that Greece's bailout package will fail to contain debt problems in other European countries.

While stocks fell, Treasurys were boosted by Europe's bad news. Wall Street often views U.S. debt as an attractive investment in light of economic instability in other countries and declines in stocks and other riskier investments.

Wedneday also brought the government's quarterly announcement on new bond auctions. Starting May 11, the Treasury Department will issue $78 billion in U.S. debt, including $38 billion in 3-year notes, $24 billion in 10-year notes and $16 billion in 30-year bonds. The government said Wednesday that it expects to raise about $47.1 billion in cash from the new issues.

While Treasury prices often fall in anticipation of new supply, investors welcomed the news. That's because the auctions will inject slightly less supply into the bonds market than last quarter, when the government issued a record-high $81 billion in Treasurys to fund its budget deficit.

The government decreased its quarterly offering amid a recovering economy and higher tax receipts, the Treasury Department said in a release Wednesday.

What analysts are saying: The Treasury's announcement gives another boost to bond prices, which were already rallying due to worries this week about the status of Greece's bailout package, said Richard Bryant, senior vice president of U.S. Treasury trading at MF Global.

Greece is still center stage as global investors flock to safe-haven trades like Treasurys, and it looks to stay that way even as investors look ahead to Friday's jobs report, Bryant said. To top of page

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