Treasury prices rallied in the final session of 2007 as investors who turned to the safety of government bonds throughout a turbulent year...

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NEW YORK — Treasury prices rallied in the final session of 2007 as investors who turned to the safety of government bonds throughout a turbulent year hedged once more against a variety of risks.

Treasurys staged an unusually impressive rally during the past year. Weakness in the housing sector and overall economy, as well as concerns that beleaguered banks could face a year-end liquidity squeeze, provided fuel for the government bond rally. There was steady demand throughout the year, but Treasury price gains were most vigorous in August, when investors grew nervous about the crisis in subprime mortgages and began shunning all forms of investment with exposure to these problems.

These themes dominated the market once again Monday, with another Treasury rally pushing yields lower against the backdrop of another decline on Wall Street.

“Yields drifted lower into year-end, tracking weakened stocks into the twilight of 2007 as safety and liquidity remained at a premium until the bitter end,” said Action Economics.

That trend was expected to continue into 2008.

“Unfortunately, the end of the year doesn’t end the problems the year brought,” said Kevin Giddis, managing director of fixed income at Morgan Keegan.

“We still have a housing and subprime problem. We still see loan defaults and foreclosures, and we will continue to see home values decline in many areas of the country.”

The benchmark 10-year Treasury note rose 11/32 to close at 101 25/32 with a yield of 4.02 percent, down from 4.12 percent late Friday. Prices and yields move in opposite directions.

The 30-year long bond gained 16/32 to 108 30/32 with a yield of 4.45 percent, down from 4.50 percent late Friday.

The 10-year Treasury yield began 2007 at 4.7 percent and lost 16.9 percent of its strength over the year. The yields on other Treasury maturities also suffered declines in 2007.

Among other things, weaker Treasury yields signal that investors expect the Federal Reserve to cut the federal funds rate that it uses to make overnight loans to banks. The central bank cut rates by a full point in the latter part of 2007.

The continuing declines in yields are a classic sign that more rate cuts, and continued weakness in housing and some other portions of the economy, are expected by bond-market investors in 2008.

The sole data report of the day, existing-home sales for this month, was slightly better than expected. But the data had little impact on trading, partly because volume was light and investors were eager to close out their books for the year.