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Treasurys gain after Spain downgrade

NEW YORK (MarketWatch) -- Treasury prices rose on Tuesday, pushing yields down toward record lows, as worries about Spain intensified after the country's credit rating was lowered.

Yields on 10-year notes (10_YEAR) , which move inversely to prices, fell 3 basis points to 1.72%, hovering just above their record lows.

A basis point is one one-hundredth of a percentage point.

Thirty-year bond yields (30_YEAR) decreased 1 basis point to 2.84%.

Just more than a week ago, long-bond yields ended at their lowest level since October -- which was the weakest since the record low of 2.57% set late in 2008.

Yields on 5-year notes (5_YEAR) erased a decline to sit little changed at 0.76% -- after flirting with their lowest level since February, when they set their lowest closing level ever.

Bond markets were closed Monday for Memorial Day.

Treasury bonds fell more after Egan-Jones downgraded Spain's credit rating to BB- from B -- its third cut in a month, according to Dow Jones Newswires.

Even before the downgrade, analysts noted that Spanish markets continue to struggle, with a weak retail sales report adding to concerns about the country's growth potential and ability to service its rising debt costs. Read about Europe markets.

Still, sentiment outside the Treasury market was modestly positive thanks to some optimism about Greece's willingness to continue to honor its bailout agreement and stay in the euro.

"The story continues as one of uncertainty mixed with confusion peppered with optimism tempered by pessimism and leaving the Treasury market [and every other market] largely dependent on developments in Europe for the big directional move," said bond strategists at CRT Capital Group. "We don't have that now, we probably won't have that for at least a few weeks if even then and so ascribe the price action to a choppy consolidation of gains."

Bonds stayed up after a pair of economic reports disappointed analysts. The S&P/Case-Shiller home-price index was flat in March and consumer confidence unexpectedly deteriorated this month. See story on home prices.

Last week, bond yields rose, breaking a strong of weekly declines in 10-year yields that was the longest since 1998. Read about Treasury market last week.