"It doesn't matter what it is, it's all down," said Levente Mady, a bond strategist at MF Global Canada.

Sovereign bonds and gold generally rally in an equity crash but both are down Friday. Gold is down $50 after rallying $20 earlier in the session.

"There is a palpable sense of fear, you can see it in the whites of people's eyes," said David Watt, senior currency strategist at RBC Capital Markets. "This is nuts."

Toronto's S&P/TSX composite index is down 534 points to 9066, the Dow Jones industrial average is down 164 points to 8416, the S&P 500 is down 26 points to 884 and the Nasdaq is down 39 points to 1606.

European stock markets closed with the Eurostoxx down 197 points to 2095, the UK FTSE 100 down 382 points to 3932 and the German DAX down 343 points to 4544.

Market watchers are hoping for some kind of solution from the G7 officials meeting in Washington, but pessimism is running high.

"The authorities had tried everything and nothing is working," Mady said. "I don't care how much Bernanke studied the depression. There's a huge bubble and it's popping and there's nothing anyone can do."

U.S. two-year yields are up 10.2 bps to 1.63%, with five-year yields up 8.3 bps to 2.76%, 10-year yields up 8.6 bps to 3.87% and 30-year yields up 3.4 bps to 4.14%. The Eurodollar March 09 contract is up 12.0 ticks to 97.67. The yield curve is steeper, with the 10/2-year spread up 1.4 bps to 225.94 bps.

Yields on two-year Canadian government bonds are up 8.5 bps to 2.22%, with five-year yields up 14.6 bps to 2.93%, 10-year yields up 15.4 bps to 3.79% and 30-year yields up 9.4 bps to 4.25%. The December 08 BAX contract is flat at 97.53.

In Germany, returns on two-year German bonds are down 3.8 bps to 3.04%, with five-year yields up 5.5 bps to 3.56%, 10-year yields up 11.9 bps to 4.00% and 30-year yields up 24.4 bps to 4.46%.

Yields on UK two-year bonds are down 8.9 bps to 3.53%, with five-year yields up 2.0 bps to 4.15%, 10-year yields up 10.0 bps to 4.47% and 30-year yields up 12.4 bps to 4.50%.

The Canadian dollar fell to session lows on Friday afternoon and is in danger of closing at its lowest level since September 2005.

Strategists say the fear and panic that has gripped global markets has market participants trying to repatriate funds and find liquid assets. The U.S. dollar and Japanese yen have both made massive gains as a result.

"The only thing people want to be liquid in is U.S. dollars. U.S. dollar funding needs are intense right now," Watt said. "You've also got a long weekend. Any time you get ahead of a long weekend, there's worry something could happen and you want to take away risk."

The Canadian dollar is down 0.0490 to 0.8332 against the U.S. dollar (1.1990 USD/CAD) and down 3.16 to 83.63 against the yen.

The U.S. dollar is up 0.47 to 100.28 against the yen and the Dollar Index is up 1.747 to 82.910.

The euro is down 0.0234 to 1.3371 against the U.S. dollar, up 0.0392 to 1.6037 against the Canadian dollar, down 0.0079 to 0.7878 against the pound sterling and is lower by 1.74 to 134.06 against the yen.

The pound sterling is down 0.0129 to 1.6968 against the U.S. dollar and up 0.0673 to 2.0337 against the Canadian dollar.

WTI crude oil is down $7.82 to $78.77. The front month gold contract at the Chicago Board of Trade is down $38.50 to $848.00 per ounce.

All data taken at 3:10 p.m. EDT.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, This email address is being protected from spam bots, you need Javascript enabled to view it

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