Bonds jump on subprime fears

NEW YORK (CNNMoney.com) -- Bond prices surged Tuesday as the fallout of the subprime lending sector rattled investors' nerves and tumbling stock markets sent investors looking for refuge, while the dollar fell against the yen and the euro.

The benchmark 10-year note jumped 16/32, or $5 for every $1,000 invested, to yield 4.49 percent, down from 4.56 percent late Monday.

The 30-year bond rose 23/32, or $7.19 for every $1,000 invested, to yield 4.66 percent, down from 4.71 percent. Bond prices and yields move in opposite directions.

The 5-year note gained 9/32, or $2.81 for every $1,000 invested, to yield 4.45 percent. The 2-year gained 4/32, or $1.25 to yield 4.56.

In stock trading, the Dow Jones industrial average tumbled about 200 points in afternoon trading, sending investors towards the safe returns of Treasury securities.

On Monday, No. 2 subprime lender New Century Financial (Charts) warned that it faces $8.4 billion in loan repayment obligations - little more than a week after revealing doubts about its ability to survive.

Tuesday a second subprime lender, Accredited Home Lenders Holding (Charts), said it was seeking to boost its liquidity.

Investors fear subprime lenders difficulties could hurt the housing market, and possibly the broader economy, as well as the big banks that have financed them, including Morgan Stanley (Charts), Citigroup (Charts), Bank of America (Charts) and the mortgage division of Goldman Sachs (Charts).

A softening economy showed itself in retail spending too.

The Commerce Department's retail sales number for February came in weaker than expected at a 0.1 percent gain, and a 0.1 percent decline excluding auto sales.

Economists surveyed by Briefing.com had expected overall sales to rise 0.3 percent last month, while sales excluding the volatile auto purchases were expected to rise 0.3 percent, as well.

In currency, the yen has been strengthened by more carry-trade unwind as well as fears of a weakening U.S. economy making the dollar less attractive to investors.

For more than a decade, investors have profited by borrowing yen at ultra-low interest rates and using the funds to buy higher-yielding investments based in other currencies - known in Wall Street parlance as the yen carry trade.

But last week's market swoon has brought risk back into focus, and a number of these borrowers have been unwinding those trades lately, which has created more volatility with the yen.

The euro bought $1.32 up from $1.31 Monday, while the dollar bought ¥116.67, down from ¥117.53.

Stocks face retail retreat