Ten-year US Treasuries jumped, pushing yields 4.9 basis points lower to 3.10 percent, tracking a rally in euro zone government bond markets in the absence of any significant domestic data. Ten-year yields fell as far as 3.092 percent as investors tested five-month lows reached on May 18.
‘A flight-to-quality bid is driving (German) Bunds as well as Treasuries higher,’ said Craig Collins, trader at Bank of Montreal.
US Treasury prices gained across the board, with the yield on two-year and 30-year US debt also trading lower at 0.50 and 4.27 percent respectively. US Treasury prices have benefited in recent weeks from data showing obstacles to the recovery in the world's largest economy.
German Bunds rallied to their highest levels since January on Monday after a series of blows to the credit ratings of lower-rated euro zone states fuelled worries over the fall-out of a regional debt crisis. Disagreement among euro zone officials over the need for a restructuring of Greek debt had already unnerved investors over the last week.
Fitch Ratings cut Greece's debt ratings by three notches on Friday, pushing the country deeper into junk territory, while Standard & Poor's cut its outlook for Italy to negative from stable on Saturday.
‘The Fitch downgrade that we saw on Friday was the catalyst for this recent move,’ a London trader said.
The T-note jumped 16/32 to 123-10/32, with US stock futures pointing to a lower opening on Wall Street.
Worries over the euro zone are currently outweighing the prospect of $99 billion worth of new notes due to be sold over the next week. The US Treasury department will sell two-year notes on Tuesday, five-year notes on Wednesday and seven year-notes on Thursday.
Investors would also keep an eye on US credit default swap spreads, which rose to their highest level in four months last week, as the White House and Capitol Hill struggle to reach deals on deficit reduction and raising the government's $14.3 trillion legal borrowing limit.
The rise in the cost of insuring US debt shows it is not immune to credit worries even if many think a default by the US government is a very remote possibility.
Copyright Reuters, 2011