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Treasuries rose for a second day, pushing two-year yields back below where they were trading before the Federal Reserve raised interest rates this week for the first time since 2006.
U.S. government debt advanced across maturities Friday, though two- and three-year notes posted some of the biggest gains. While shorter-dated obligations are typically most sensitive to central bank policy changes, traders said the fixed-income universe is focusing on the Fed's message that it plans to stick to gradual rate increases.
Declines in stocks and a tumble in oil to the lowest in more than six years damped inflation expectations and raised the appeal of U.S. government debt. Traders are also concerned that the Fed's quarter-point rate boost on Wednesday may prove a drag on global economic growth.
"The result of uncertainty is a better bid for Treasuries," said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. "There's still global economic weakness, and pressure on oil and equities" as well as expectations the Fed will take a gradual approach.
Benchmark two-year yields fell three basis points, or 0.03 percentage point, to 0.95 percent at 5 p.m. in New York, according to Bloomberg Bond Trader data. The 0.875 percent note maturing in November 2015 rose 2/32, or 63 cents per $1,000 face amount, to 99 27/32.
The yield fell to the lowest since Dec. 15, the day before the Fed's historic decision to lift its benchmark from near zero.
Oil settled at the lowest since February 2009, while U.S. stocks logged the biggest two-day retreat in three months.