BONDS REGISTER BIG GAIN AS INVESTORS FLEE FALLING STOCKS.

Byline: Bloomberg News

U.S. bonds posted the biggest gain in two months, pushing the benchmark 30-year yield to a record low, as investors snapped up Treasuries as a refuge from tumbling stock markets around the world.

``There's catastrophe in the air, and people run to the safest thing they know,'' said William Gross, who oversees about $137 billion in bonds at Pacific Investment Management Co. in Newport Beach.

The 30-year Treasury bond rose 1 1/32 points, or $10.31 per $1,000 bond, driving the yield down 8 basis points to 5.43 percent. It fell earlier to 5.38 percent, the lowest since the government began regular sales of the securities in 1977.

Friday marked the first time since Jan. 17, 1990, that the 30-year yield fell below the Federal Reserve's target rate for overnight bank lending, now at 5.5 percent.

Treasury bonds returned 10.8 percent so far this year, when price gains and coupon payments are included. U.S. government securities have become the investment of choice for those looking for a refuge from turbulent financial markets.

U.S. bonds have rallied in recent days as concern that some of Russia's biggest banks might fail sent investors stampeding out of emerging markets.

Treasuries also got a boost as the dollar rose against the yen for the first time in five days. Speculation faded that Japan will sell dollars to bolster the yen.

The dollar rose as high as 145.40 yen from 142.90 in New York late Thursday, after Okura & Co., a Tokyo-based trading company, became Japan's third-largest bankruptcy this year.