US bonds gain

US Treasury debt prices rose on Monday, boosted by safe-haven bidding following a report showing factory activity fell to its lowest in 26 years in October, the latest in a string of dismal economic reports. The manufacturing report added to evidence of a dire economic picture that few analysts expect to improve anytime soon, giving government bonds added luster.
"What you have seen driving Treasuries in recent weeks is this tremendous deleveraging that has occurred globally," with selling of riskier assets and buying of safe haven government debt, said Sean Murphy, Treasury trader at RBC Capital Markets in New York.
"Now people are looking at the weak economy and a more deflationary type atmosphere," he said. The benchmark 10-year Treasury note's price, which moves inversely to its yield, traded up 17/32 for a yield of 3.91 percent from 3.97 percent late on Friday.
The Institute for Supply Management said its index of national factory activity fell to 38.9 in October, marking the weakest since 1982, from 43.5 in September. A number below 50 indicates contraction. Two-year notes were 7/32 higher in price for a yield of 1.45 percent from 1.57 percent.
Bonds price gains were also limited by expectations of a hefty amount of new debt supply to meet the needs of various government programs intended to revive the financial system. The Treasury will announce the terms of its quarterly refunding, to be conducted next week, on Wednesday.
"The issue of supply that is coming down the pike has been keeping yields higher than they normally would be given the type of economic data we are seeing, which is fairly dismal," said Mark Freeman, senior vice president and portfolio manager with Westwood Holdings Group in Dallas. Analysts are looking ahead with some trepidation to October non-farm payrolls data, to be released on Friday, which are expected to show the US jobs market contracted for the tenth straight month.
"We expect this week's data to show an intensification of the credit crunch and a plunge in growth as the fourth quarter began," said James O'Sullivan, economist at UBS Securities in Stamford, Connecticut. Five-year Treasury notes were trading 14/32 higher in price for a yield of 2.71 percent from 2.81 percent late on Friday.
The 30-year bond was up 17/32 for a yield of 4.34 percent from 4.37 percent. Trading volume was below normal, in part due to a Japanese market holiday overnight. Government debt traders were also bracing for Tuesday's US presidential election, in particular to see how the reaction of stocks and other riskier assets might affect safe haven Treasuries. Democrat Barack Obama led Republican John McCain in national opinion polls as the campaign drew to a close.