May 22 (Bloomberg) -- U.S. Treasuries, European bonds and Japan's debt rallied as a slide in stocks and commodities spurred investors to buy government-guaranteed securities. Commodities in the U.S. rebounded late in the day.

``With the drop in equities and commodities, the safe haven role of bonds has clearly been a factor,'' said Kai Wildfoerster, who helps oversee about 15 billion euros ($19 billion) in assets in Munich at Pacific Investment Management Co., which manages the world's biggest bond fund.

Investors' tolerance for risk is the lowest since the U.S.- led invasion of Iraq in 2003, according to a measure calculated by UBS AG, the world's largest money manager. Yields on 10-year German bunds and Japanese government securities with the same maturity dropped at least 5 basis points today, for the first time since July 2004.

The yield on the benchmark 10-year Treasury fell to 5.04 percent at 4:15 p.m. in New York, after dipping below 5 percent. The 5 1/8 note due May 2016 rose 1/8 to 100 21/32. Germany's 4 percent bund yield closed 7 basis points lower at 3.91 percent. Japan's 10-year bonds posted their biggest rally since October 2004, sending yields down 8.6 basis points to 1.83 percent.

Ten-year notes headed for their first three-day gain since February as U.S. stocks fell. The Standard & Poor's 500 Index lost 0.4 percent to 1,262.07. The decline extends the benchmark index's biggest two-week drop since January 2003.

Swiss Life a Buyer

``There's been a flight to quality as the drop in the stock markets is something that you can't ignore,'' said Dimitri Andraos, head of fixed income in Paris at Swiss Life Asset Management, a unit of the largest Swiss life insurer, who's adding to his holdings of government debt. ``We've reached levels that are good value to get in.''

Japan's bonds rallied as the country's Nikkei 225 Stock Average lost 1.8 percent. Asia's benchmark Morgan Stanley Capital International Asia-Pacific Index dropped 2.1 percent.

``As equity markets wobble, Treasuries will attract insurers and pension fund managers and they will shift their money to bonds,'' said Felix Stephen, a fixed-income strategist at Advance Asset Management in Sydney. ``It's more of a safe-haven trade you are seeing in the Treasuries market.''

Four-Month Sell-off

Gains in Treasuries, Japanese bonds and German bunds in the past week leave them poised to halt four straight months of losses caused by evidence of faster inflation. Ten-year Treasury yields have climbed 65 basis points this year. German bund yields have increased 64 basis points and Japanese 10-year yields 35 basis points in the same period.

``We will see a bottom in the big bear market,'' said Wildfoerster at Pimco. He declined to say what he's buying.

Core U.S. consumer prices rose 0.3 percent in April from the previous month, a government report showed May 17, more than the 0.2 percent median estimate in a Bloomberg survey. Euro-region inflation excluding food and energy costs accelerated to a 1.5 percent annual pace last month, from 1.3 percent in March, a European Union report showed the same day.

Hedge-fund managers and other large speculators are betting on gains in Treasuries. They increased their net-long positions in 10-year note futures in the week ended May 16, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 106,571 contracts on the Chicago Board of Trade. There were 27,300 net-long positions in the prior week.

To contact the reporter on this story: Kabir Chibber in London at kchibber@bloomberg.net.

Last Updated: May 22, 2006 16:16 EDT