The yield on the benchmark 10-year note was 2.49% at 4:30 p.m. in New York. That's down from 2.6% late Monday and is the lowest level since the 10-year yield closed at 2.4% on January 20, 2009, according to data from the Federal Reserve.
The yield on the 2-year note dropped to 0.48%, holding near an all time-low, while the 5-year yield slid to 1.33%. The yield on the 30-year bond was 3.56%, down from 3.66%.
The flight to safety boosted demand for the $37 billion worth of 2-year notes that the government sold Tuesday, with investors submitting bids totaling $115 billion for the notes.
The bid-to-cover ratio, a measure of demand, was a relatively strong 3.12. But the ratio was higher at the last 2-year sale in July, and has averaged 3.17 so far this year.
It was the first of three auctions this week totaling $102 billion in U.S. debt. On Wednesday, the U.S. will offer $36-billion in 5-year notes and will offer $29 billion in 7-year notes on Thursday.
Economy driver: The National Association of Realtors reported that existing home sales dropped 27% in July. That marked the lowest rate since 1995 and was significantly worse than expected.
Analysts said the drop was due largely to the absence of a key government tax credit for homebuyers. But the report added to ongoing concerns that the recovery is faltering and could give way to another economic downturn.
"The Treasury market is trading higher this morning as the investment community reinitiates the 'flight-to-quality trade' in response to more weak news on the economic front," Kevin Giddis, managing director of fixed-income at Morgan Keegan, wrote in a research note.
Flight to safety: Treasurys are widely considered one of the most secure assets available. As a result, prices often rise when investors are nervous about the economic outlook. Stocks, however, fell sharply after the housing report came out.
In addition to Treasurys, investors sought refuge in the Japanese yen, which is also seen as a secure asset in times of economic decline. The yen soared to a 15-year high versus the U.S. dollar.