U.S. bonds attract buyers after surge in yields and more turmoil in Europe

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The U.S. bond market is trying to end the week with a rally, as the highest yields since at least spring finally lure some buyers.

The 10-year Treasury note yield was trading at 3.33% at about 11:50 a.m. PST, off from 3.47% on Thursday and down from the seven-month high of 3.52% on Wednesday.

The market was helped by more fallout from Europe’s government-debt crisis. Despite the European Union’s bailout package for Ireland, Moody’s Investors Service issued a stunning vote of no-confidence in both the EU and Ireland: The firm slashed the country’s debt rating to Baa1 from Aa2, a cut of five notches, and warned that more downgrades may be forthcoming.

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

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

The euro slid 0.5% against the dollar, to $1.317 from $1.324 on Thursday, adding further support to the Treasury market.

The battered municipal bond market also was rallying Friday as investors were drawn in from the sidelines by the recent surge in yields.

It helped that a Republican congressman promised a “reincarnation” of 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 over the last two months.

The popular iShares S&P National AMT-Free Muni bond exchange-traded fund was up $1.32, or 1.3%, to $99.96, its third straight daily gain after falling to a 52-week low of $97.30 on Tuesday. The share price had plunged 8.4% since Oct. 25.

The BlackRock MuniYield California closed-end fund was up 14 cents, or 1.1%, to $13.18 after rallying 2.6% on Thursday.

-- Tom Petruno