Analysts said yields, which move inversely to prices, could fall further if the geopolitical tensions continue to rise - even if central bankers in the U.S. continue to talk of raising interest rates or scaling back stimulus programmes.
The CBOE Volatility Index - a measure of investors' expectations for swings in the S&P 500 over the next 30 days - surged 44% to 16.04 Thursday - its highest level since U.S. Election Day. The S&P shed 1.4%, its worst week since March, while the Nasdaq posted a weekly loss of 1.5%, its worst since June.
Subdued U.S. inflation has stirred doubts about the chances of another Fed interest rate hike this year, which have weighed on the dollar.
The remarks, following North Korea's earlier revelation of a plan to launch a salvo of ballistic missiles toward the U.S. Pacific territory of Guam, gave investors further incentive to take to the sidelines at least in stock markets. Hong Kong's Hang Seng dipped 1.1 percent to 27,444.00.
On the currency markets, the pound was marginally higher against the United States dollar at 1.30 and up 0.1% versus the euro at 1.11.
LONDON, Aug 11 (Reuters) - The dollar was pinned close to an eight-week low against the yen on Friday as escalating tension over North Korea dominated currency markets thinned out by the summer holidays in Europe and the United States. The hope, and perhaps the expectation, is that this latest round of rhetoric will also turn out to be just talk, said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management.
Currency traders consolidated positions in the Japanese yen and Swiss franc, and nudged up the dollar index by unwinding some of the recent big bets on the euro.More news: Woman who accidentally suffocated her newborn sues hospital
The euro fell a quarter-of-a-percent against the dollar to trade at $1.1728 as European markets opened.
On the currency markets, the pound was down to a three-week low against the U.S. dollar but mainly due to earlier disappointing output and trade data.
Also underpinning a move higher in the precious metal, was data showing a continued slowdown in the pace of inflation as consumer prices rose less than expected in July. "There are four more (inflation) prints between now and the December FOMC meeting and we expect the Fed to remain data-dependent, if a touch more cautious", TD Securities said in a note.
Gold was up for the third day, hitting an intra-day high of $1,280.38 an ounce that was last recorded mid-June.
The biggest fallers were G4S down 24.7p to 305.9p, Standard Chartered down 20.9p to 783.1p, Prudential down 44p to 1,841.5p, Shire down 92p to 3,945p.
The Korean story has seen the yen gain around 1.5 percent this week, its biggest rise since mid-May.
OIL: Benchmark U.S. crude added 7 cents to $49.24 a barrel on the New York Mercantile Exchange.
Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in USA crude inventories, leaving prices volatile.