Treasury prices advanced Wednesday as investors unnerved by crude oil's record-breaking run pulled money out of the stock market and transferred it to the safety of government debt.Investors began to fear the impact of inflation on consumer spending and in turn the entire economy as crude approached $124 a barrel on the New York Mercantile Exchange. This lifted demand for Treasurys, sending yields tumbling in both short- and long-term maturities. "We're watching energy quotes very closely, they are kind of in their own world," said Jay Mueller, an economist with Strong Capital Management. "We continue to follow the lead of the equity market ... oil seems to be dominating everything."

Oil prices have doubled over the past year, causing the price of gasoline and just about everything else in the economy to rise and weigh on cash-strapped consumers.



Crude's advance Wednesday supported Kansas City Federal Reserve Bank President Thomas Hoenig's assertion that persistent gains in food and energy prices will trigger inflation. He said during a speech late Tuesday that this trend could force the U.S. Fed to raise interest rates.

The central bank lowered the fed funds rate a quarter point last week. Some economists thought policymakers might take a break from their rate-cutting campaign to better focus on fighting inflation.

Fears of inflation sent major stock indexes sharply lower, with the Dow Jones industrials falling more than 200 points. In reaction, Treasury yields — which move opposite of prices — fell from their highest levels seen since February.

At the close of regular trading, the benchmark 10-year Treasury rose 18/32 to 97 6/32 and yielded 3.85 percent, down from 3.92 percent late Tuesday, according to BGCantor Market Data.

Meanwhile, the 30-year long bond rose 1 2/32 to 96 9/32 and yielded 4.60 percent, down from 4.67 percent late Tuesday.

The 2-year note added 6/32 to 99 21/32 and yielded 2.30 percent, down from 2.39 percent late Tuesday.

In late trading, the 30-year yield rose to 4.61 percent and the 2-year yield rose to 2.31 percent. There was no change in the 10-year yield.

The 3-month Treasury bill yielded 1.68 percent, up from 1.63 percent late Tuesday, and the discount rate was at 1.91 percent, up from 1.60 percent.

Fixed-income investors also positioned their portfolios amid the biggest government auction for 10-year notes in four years. The Treasury Department awarded $15 billion worth of the debt a high yield of 3.94 percent, which was higher than the market expected.

The government will also sell $6 billion of 30-year bonds on Thursday as part of its quarterly refunding program.

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