Longer-dated US Treasury debt prices rose on Monday after a larger-than-expected decline in October existing home sales bolstered hopes for an end to the Federal Reserve's interest rate increases.
Housing has been a primary driver of US economic growth, so economists have worried that consumer spending would falter if Americans were to experience a dramatic decline in the value of their homes.
"Consumers have used their houses like cash machines," said Mary Ann Hurley, a senior Treasuries trader at D.A. Davidson & Co "Once that evaporates, that's going to be yet another factor they have to deal with - on top of high energy prices, tougher bankruptcy laws, and so on."
Already, consumers offered mixed signals over the past weekend, which marked the official start of the all-important holiday shopping season. Combined, November and December usually account for about a quarter of annual retail sales.
Sales of existing US homes slowed in October to a 7.09 million unit pace, down 2.7 percent from September's upwardly revised 7.29 million unit pace, the National Association of Realtors said.
Meanwhile, median home prices rose 16.6 percent from one year ago, the largest rise since July 1979 and plenty of fodder for those arguing for the existence of a housing market bubble.
"The fact that sales are coming down is not surprising because affordability has come down a lot lately," said David Berson, chief economist at Fannie Mae.
Some analysts go so far as saying the Fed continues raising rates just to rein in the housing market, which boomed in part because of the central bank's policy of prolonged rock-bottom borrowing rates.
November was a happy month for bond bulls, with weaker economic data prompting revised expectations of continuous interest rate increases from the Federal Reserve.
Minutes from the Fed's latest meeting published last week were the icing on the cake, revealing a growing feeling within the central bank that an end to policy tightening might be in sight after more than a year of steady rate hikes.
The possibility of a pause kept the 30-year bond higher for a yield of 4.63 percent, compared with 4.66 percent.
However, another two Fed rate rises in December and January were still built into the market, which helped explain why two-year notes US2YT=RR were steady and yielding 4.328 percent.
Five-year notes were up 1/32 for a yield of 4.325 percent. It was the first time in five years that five-year notes were yielding less than two-year debt.
Traders were watching to see when two-year yields might surpass those on 10-year notes, an event that would constitute a full-fledged inversion of the yield curve. Spreads between the two maturities were hovering near five-year lows of 0.08 percentage point.
Historically, a yield curve inversion is generally viewed as a precursor to slower economic growth, or even recession.