Bonds keep climbing on credit fears

Investors continue to pour into Treasurys in a flight to quality, while investors bet on fed funds rate cut.

The dollar retreated against the euro and the yen.

The 10-year note rose 11/32, or $3.44 on a $1,000 note, to yield 4.58 percent, down from 4.65 percent late Monday.

Panic eases, credit woes persist

The 30-year note gained 11/32 to yield 4.94 percent, down from 4.98 percent in the previous session. Bond prices and yields move in opposite directions.

Shorter-term debt continued to post big gains as the five-year gained 9/32 to yield 4.23 percent. The two-year note rose 5/32 to yield 4.01 percent.

Investors again sought shelter in Treasurys amid worries that more credit market troubles were forthcoming.

Last week, the Federal Reserve tried to allay those fears by cutting the discount rate 50 basis points. The move provided temporary support to the battered stock market, but investors continued to bet during Monday's session that more troubles were ahead.

But with evaporating credit conditions, much of Wall Street believes that the central bank will have to take additional action, including cutting the key federal funds rate, which directly impacts consumer loan rates. That rate remains at 5.25 percent.

"There is a huge liquidity crisis that has not gone away despite the Fed's efforts of last week," David Ader, head of government bond strategy at RBS Greenwich Capital in Greenwich, Conn., told Reuters late Monday.

In related news, the Chinese central bank raised interest rates in an effort to stabilize inflation expectations.

In currency trading, the dollar retreated versus the yen, trading at ¥114.60, down from ¥114.96 Monday, while the euro bought $1.3510, up from $1.3485.