By Masaki Kondo, Ruth Carson and Alice Atkins

(Bloomberg) -- Treasuries extended gains, with front-end yields trading at the lowest level in over three years, as US regional bank jitters bolstered bets on Federal Reserve interest-rate cuts.

Two-year yields fell as much as five basis points to 3.37%, the lowest level since August 2022. The move came as five-year yields sank to 3.50%, the lowest level in a year, while the benchmark 10-year yield dropped below 4%.

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The flight to Treasuries is part of a broader wave of haven buying sweeping through global markets, with concern growing that problem loans disclosed by two US regional banks may point to a broadening crisis.

“The rally we’re seeing in Treasuries today is a hunt for havens story,” said Anna Wu, cross-asset strategist at Van Eck Associates. “There’s arguably some knee-jerk reaction amid spikes of uncertainty from the credit woes.”

European and UK government bonds mirrored the moves. German 10-year yields dropped as much as four basis points to 2.53%, the lowest level since June. Meanwhile, UK two- and 10-year yields fell as much as five basis points to 3.80% and 4.45% respectively.

“Classical flight-to-quality patterns are back,” said Christoph Rieger, head of rates and credit research at Commerzbank AG, adding that bund yields could drop below 2.5%. “No obstacles appear to be standing in the way of the firming upward trend,” in bonds.

Angst around US regional banks is adding to a number of worries for investors, with the government shutdown and simmering trade tensions also weighing on the outlook for global growth.

Traders boosted bets on US interest-rate cuts to price as much as five quarter-point reductions by the end of next year, with around a 30% chance of a sixth.

Federal Reserve officials reinforced wagers on more policy easing. Governor Christopher Waller said Thursday that rates can continue to decline in quarter-point increments, while his counterpart Stephen Miran advocated a larger reduction.