US Treasury debt prices rose on Monday as a sharp drop in Wall Street stocks indexes and the dollar helped lift bonds while traders prepared for a slew of key economic data and Federal Reserve speakers this week.
The dollar fell to 20-month lows against the euro and US stocks dropped sharply with major indexes posting their largest losses in over four months. The weakness in other asset classes sent some investors into the relative safety of bonds, helping yields approach nine-month lows.
"We saw some very large trades out of stocks into bonds. Today's name was safety," said Andrew Brenner, head of global fixed-income at Hapoalim Securities in New York. Benchmark 10-year Treasury notes traded 6/32 higher in price for a yield of 4.53 percent compared with 4.56 percent late on Friday. Bond prices and yields move inversely.
US stocks tumbled amid concern about Google Inc's valuation and doubts about holiday spending after a disappointing sales estimate from Wal-Mart Stores Inc, the world's largest retailer. Bond prices had earlier been lower as investors prepared for the possibility that the data deluge this week could derail a month-long rally.
While Monday was a light day for market-moving news, activity was guaranteed to pick up with data on home sales, consumer confidence, and the Fed's favourite gauge of inflation - the core personal consumption expenditures (PCE) price index.
Bond prices were also under some selling pressure ahead of auctions of new debt this week. Traders often move to cheapen bond prices ahead of new debt sales.
"Given that the market is still trading at relatively lofty price levels - low yield levels - we are seeing people getting set up for the auctions and a little bit of profit-taking," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co in Seattle.
For the past month, bond prices have been rallying and yields falling amid general expectations that slower economic growth could spur the Fed to cut official interest rates sometime next year. The Treasury will auction $20 billion of two-year notes on Tuesday and $14 billion of five-year notes on Wednesday. Two-year notes were up 1/32 in price for a yield of 4.73 percent compared with 4.75 percent late on Friday. Five-year notes were up 2/32 in price to yield 4.54 percent and the 30-year bond was trading 11/32 higher in price for a yield of 4.61 percent.