Investors snapped up Treasurys and ditched European debt Friday after Standard & Poor's downgraded the credit ratings of major European nations, including France and Italy.
The yield on the 10-year Treasury note plunged to its lowest level this year as demand intensified for safer investments. Traders sold stocks and European sovereign debt, raising borrowing costs for nations such as Italy and Spain.
S&P said late Friday that it had reduced the credit ratings of France, Austria, Italy and Spain. The cuts eliminated France and Austria's AAA status, dealing a heavy blow to the euro currency union's ability to fight off a worsening debt crisis.
Europe's bailout fund has its own credit rating, based on the ratings of countries that contribute to it. With two fewer AAA-rated countries backing the fund, its rating could be cut as well.
In another fretful sign, U.S. exports to Europe plunged nearly 6 percent in November. Exports to other parts of the world declined more modestly. Sales to Europe are slowing because the region's economy has slowed to a crawl and its currency has weakened.
The euro fell to a 17-month low against the dollar. Traders buy dollars to get access to the market for U.S. Treasurys, and the euro's decline was partly a symptom of high demand for American debt.
The downgrades could escalate Europe's financial crisis by increasing borrowing costs for nations already struggling with heavy debt burdens. Yields increased on Spanish, French, Belgian and Italian bonds.
The price of the 10-year Treasury note leaped 53 cents per $100 invested, pushing its yield down to 1.87 percent at 5 p.m. Eastern time from 1.93 percent late Thursday. The yield had dipped earlier to 1.83 percent. It has not settled below that level since October.
A bond's yield falls as its price increases. The lower yield signals that investors are willing to accept an even tinier return in exchange for holding a safe investment.
The price of the 30-year Treasury bond rose $1.16 per $100 invested, sending its yield down to 2.91 percent from 2.98 percent late Thursday.
The yield on the two-year Treasury note was nearly unchanged at 0.23 percent. The yield on the three-month Treasury bill held steady at 0.03 percent.