US Treasury debt prices rallied on Monday as a troubled outlook for the US and global economies whetted appetite for safe-haven government debt, sending yields to their lowest in more than eight months. A closely watched measure of US manufacturing underscored the precariousness of the US economic outlook after gross domestic product figures last week showed minimal growth in the first half of the year.
On the debt ceiling front, US congressional leaders lined up votes for a White House-backed deal to raise the US borrowing limit and avert an unprecedented debt default. "If the debt ceiling and US credit quality were the only concerns, then we might be looking at a rally in stock prices as risks declined and a flattening of the Treasury yield curve as uncertainty about the credit outlook improved," said Robert Tipp, chief investment strategist for Prudential Fixed Income with $240 billion in assets under management. "But a tectonic shift is occurring in people's perceptions and expectations about the economy and that shift is not limited to the United States; it applies to Europe and, to some extent, China, as well," Tipp said.
Benchmark 10-year notes traded 13/32 higher in price to yield 2.75 percent, the lowest since mid-November and down from 2.80 percent late Friday. Recent bidding for Treasuries had benchmark notes on track for the biggest three-day dip in yield since May 2010.
With an expected increase in the debt ceiling, the US Treasury Department sold $27 billion in three-month bills and $24 billion in six-month bills. In the three-month auction, the level of bids received eclipsed those accepted by a 4.51 ratio, the highest in nearly a month, said Thomas Simons, money market economist at Jefferies & Co in New York. Demand was less enthusiastic for the $24 billion in six-month bills the Treasury auctioned. Thirty-year Treasury bonds traded 21/32 higher in price with their yields falling to 4.08 percent from 4.12 percent late Friday.
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