US Treasury debt prices rose on Monday as the latest spike in crude oil prices was seen as a threat to consumer confidence and spending. Support was also seen from Treasury figures showing surprisingly strong foreign capital inflows in February, and later a report that homebuilder confidence cratered in April to its lowest level since November 2001.
Still, volume was below average, with some dealers hesitant to take a stand before the March producer price index and consumer price index reports, due at 8:30 am Tuesday and Wednesday, respectively.
The bellwether 10-year Treasury note rose 10/32 in price for a yield of 5.01 percent, down from 5.04 percent on Thursday. Treasury trading was closed on Friday for the Good Friday holiday.
The benchmark note yield ticked below 5 percent briefly in intraday trading. A close below 5 percent could generate more vigorous buying interest, technicians said.
Crude oil futures hit $70 for the first time since the immediate wake of Hurricane Katrina, and settled at a record daily close of $70.40 a barrel.
Rising energy prices can play both ways in the economy, crimping consumer spending by imposing a de facto consumption tax, while at the same time threatening to push up inflation by driving production costs higher.
US equities prices sustained moderate losses on the energy rally, which in turn sparked some investor flight to the safety of the bond market, dealers said.
Meanwhile, the National Association of Home Builders index of sentiment fell to a 4-1/2-year low of 50 from the downwardly revised March level of 54.
"This data is fresh evidence that recent gains in mortgage rates are hitting the housing market," said David Sloan, economist at 4CAST Ltd.
Housing has been a major source of strength of the US economy in recent years, and weakness in that sector could encourage the Federal Reserve to pause its program of interest rate hikes sooner than later.
The Treasury reported net long-term capital inflows for February of $86.9 billion, far above the $62.8 billion forecast by Wall Street.
Purchases of US Treasuries rose to $21.9 billion from a low $4.4 billion in January, suggesting foreign buyers still have an appetite for US debt.
Earlier, the New York Federal Reserve's Empire State survey of factory activity fell to a six-month low of 15.8, below the consensus forecast of 24.5. New orders, shipments and employment all fell.
"The number of firms reporting improved business conditions decreased modestly while the number of firms reporting worse business conditions jumped," said Steven Wood, economists with Insight Economics.
Treasury dealers will look for verification of weaker factory activity from other regional surveys, including the Philadelphia Fed's report on Thursday.
Several Fed officials who spoke late on Thursday had a dovish undertone on rates, but Chicago Fed President Michael Moskow weighed in with more hawkish comments on Monday.
"Inflation currently is near the upper end of the range that I feel is consistent with price stability," Moskow said, pledging that the Fed would stay "vigilant" on the issue.
In short-term rate futures the chances of Fed hikes in June as well as May slipped to 52 percent. On balance, the futures market still anticipates a peak fed funds rate of 5.25 percent against the current 4.75 percent.
Two-year note yields were at 4.90 percent, down from 4.95 percent.
Five-year notes were up 7/32 at a yield of 4.92 percent, down from 4.96 percent. The 30-year bond rose 14/32 for a yield of 5.08 percent, down from 5.11 percent.