US government debt prices rose on Monday posting a second straight session of gains for the first time in a month after surprisingly stark signs of further deterioration in the housing market.
With benchmark yields well off last week's five-year highs above 5.30 percent, a move stoked by investors' worries about global economic growth and central banks' raising interest rates, higher yields have attracted more buyers, helping Treasuries find a foothold, analysts said.
The weak housing market report might faintly revive hopes among bond investors for a Federal Reserve interest rate cut in the future, although few expect any easing of monetary policy before next year.
"This report might be an indication there may be more of a decline in housing than expected and the 10-year Treasury note could be considered a safe haven," said Mike Tosaw, fixed-income analyst with online brokerage optionsXpress Inc in Chicago.
Also, after the sell-off of the last two weeks pushed Treasury prices down, "government bonds are becoming more attractive for investors," Tosaw said.
The benchmark US Treasury 10-year note rose 4/32 in price for a yield of 5.15 percent, compared with 5.17 percent late on Friday. Last week, 10-year yields reached a five-year high of 5.33 percent. Bond prices and yields move inversely.
The National Association of Home Builders' housing market index dropped to 28 in June, the lowest level since February 1991 and below economists' median forecast for the reading to be unchanged from May's level of 30. The sentiment gauge is seen as a proxy for future US housing activity.
Monday's housing data preceded the release on Tuesday of data on of US housing starts and building permits, which bond analysts said will be more widely watched.
The median forecast of economists in a Reuters poll is for May housing starts at an 1.480 million annual rate, down from 1.528 million rate in April, and for building permits at a 1.471 million rate, up from 1.457 million in April.
"Tomorrow's data will be a bigger deal, but will do US government bonds absolutely no good if it comes in line. It would have to miss pretty good for Treasuries to get anything out of it," said Beth Malloy, bond market analyst, with Research Company Briefing.com in Chicago.
Earlier, Treasuries were weighed by a downturn in euro zone debt prices after a European Central Bank official warned of stronger-than-expected inflation in the region.
Two-year notes traded unchanged in price for a yield of 5.01 percent versus 5.03 percent on Friday. The 30-year bond traded unchanged in price for a yield of 5.26 percent, compared with 5.26 percent late on Friday. Treasuries also gained a slight safe-haven bid on renewed worries about problems in subprime mortgages amid reports of heavy selling by a mortgage hedge fund, analysts said.