Interest rates fall as investors seek safety

NEW YORK - Interest rates fell in the bond market Friday after China said it would increase reserve requirements for its banks.

The yield on the 10-year Treasury note maturing in November 2019, a benchmark for interest rates on many consumer loans, fell to 3.68 percent from 3.73 percent Thursday. Its price rose 13/32 to 99 18/32.

China surprised investors by announcing the country's banks will have to hold more money in reserve. The rule is aimed at containing growth so speculative investment bubbles don't form.

Traders are "surprised China is taking actions tantamount to tightening credit," said David Coard, director of fixed income sales and trading at the Williams Capital Group, L.P. A report Thursday showed inflation was fairly benign in China.

It was the second time in a month China boosted banks' reserve requirements. As happened before, investors exited riskier investments like stocks and commodities and bought up safer government-backed bonds and the dollar.

The Dow Jones industrial average fell 105 points, or about 1 percent.

Coard said there is also uncertainty surrounding sovereign debt in Europe, which often leads investors to stash money in safe investments.

European Union leaders on Thursday pledged to provide support for debt-burdened Greece, but actual details on the plans were scant. Similar problems in Spain and Portugal have also sparked concerns that mounting debt among the 16 nations that use the euro will undermine Europe's shared currency.

In other trading, the yield on the 30-year bond maturing in November 2039, fell to 4.64 percent from 4.67 percent. Its price rose 16/32 to 99 23/32.

The yield on the two-year note that matures in January 2012 fell to 0.83 percent from 0.88 percent, while its price rose 3/32 to 100 3/32.

The yield on the three-month T-bill that matures May 13 rose to 0.10 percent from 0.09 percent from 0.10 percent.