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Treasurys rally on flight to safety

By Blake Ellis, staff reporter

NEW YORK (CNNMoney.com) -- Treasurys rallied Thursday as stocks plunged and investors worried about European debt and its effect on the global economy.

What prices are doing: The benchmark 10-year note rose 1-10/32 to 102-13/32, pushing the yield down to 3.22% from 3.36% on Wednesday. Bond prices and yields move in opposite directions.

The 30-year bond added 2-18/32 to 104-25/32 and yielded 4.1%, while the 2-year note edged up 4/32 to 100-18/32 with a 0.72% yield. The 5-year note rose to 102-13/32, yielding 2.99%.

What's moving the market: Investors flocked to the safety of government-backed bonds on Thursday as stocks dropped more than 10% from the session's highs.

"We're seeing a massive flight to quality," said Kim Rupert, fixed income analyst at Action Economics. "Equities are really losing a grip, and Treasurys are the beneficiary."

Markets have been rattled over the past month as investors worry about European debt, despite a $1 trillion rescue package aimed at stabilizing the euro and helping troubled nations such as Greece reduce their debt loads.

On Wednesday, the euro was briefly lifted by Germany's announcement that it would ban so-called naked short selling of debt securities issued by euro zone countries and 10 large financial firms.

But because investors were still skeptical of the health of European banks, Treasurys rallied following the announcement.

By the end of the day Wednesday, however, bonds pared gains and ended the day slightly lower after the Federal Reserve raised its outlook for economic growth and lowered its unemployment rate forecast.

Economy: Investors were also digesting several disappointing economic reports from the government on Thursday.

The Labor Department reported that weekly jobless claims rose unexpectedly by 25,000 to 471,000 last week, while economists expected a drop to 440,000 claims.

After the start of trading, the Conference Board said its index of leading economic indicators fell 0.1% in April after rising 1.3% in March. Economists surveyed by Briefing.com expected the index to rise 0.2%.

A regional manufacturing survey for May was also released Thursday. The Philadelphia Fed index rose to 21.4 in May from 20.2 in April, beating the estimated rise to 20.7. To top of page

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