Jump in Treasury, muni bond yields attracts buyers

The battered U.S. bond market ended the week with a rally on Friday, as the highest yields since at least spring lured buyers.

The benchmark 10-year Treasury note yield fell to 3.32%, off from 3.47% on Thursday and down from a seven-month high of 3.52% on Wednesday.

Traders said the Treasury market was helped as some investors sought a haven amid more fallout from Europe’s government-debt crisis.

Despite the European Union’s bailout package for Ireland, which the country accepted this week, Moody’s Investors Service on Friday issued a stunning vote of no-confidence in both the EU and Ireland: The firm slashed the island nation’s debt rating to Baa1 from Aa2, a cut of five notches.

On Wednesday, Moody’s put Spain’s Aa1 rating on review for possible downgrade.

The U.S. still looks like a refuge, relatively speaking, compared with the ongoing mess in Europe, analysts said.

The euro slid 0.4% against the dollar, to $1.318 from $1.321 on Thursday, adding further support to the Treasury market.

Despite an EU summit this week, “European officials do not appear to have taken any fresh initiatives to address the current pressures� in their markets, currency analysts at Brown Bros. Harriman & Co. said in a report Friday.

In the U.S., Treasury yields have risen sharply over the last two months as many economic reports have pointed to a strengthening recovery. But some analysts said the rebound in yields has run its course.

David Ader, a principal at bond dealer CRT Capital Group in Stamford, Conn., predicted that bond yields would slide again in the first quarter as the Federal Reserve continues to buy more than $75 billion in Treasuries monthly in an attempt to keep rates suppressed.

The tax-free municipal bond market also rallied Friday as investors were drawn in from the sidelines by the recent surge in yields.

Also, Rep. John Mica (R-Fla.) told Bloomberg News that he wanted to revive the federally subsidized Build America Bond muni program — the coming expiration of which, on Dec. 31, has been partly responsible for the upheaval in the muni market since October.

Shares of many popular muni bond mutual funds rose for a second straight day as market yields dropped.

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