US Treasuries slipped on Monday, lifting benchmark yields from Friday's six-week lows as stocks rallied. The gains in stocks tempted buyers back into riskier assets and out of US government bonds, which rallied last week on safe-haven buying sparked by investor fears problems in the subprime mortgage sector, which caters to borrowers with shaky credit, were spreading through financial markets.
As the stock market rebounded on Monday with gains from take-over and earnings news, bond prices trended down, awaiting more warnings of weakness in the housing or subprime credit sector to extend gains.
"I think we need continued problems on the credit market front and weaker economic data to keep yields] below 5 percent on the 10-year Treasury," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co in Seattle.
In the early afternoon, the price on benchmark 10-year Treasury notes was down 4/32 to yield 4.97 percent. The benchmark note closed at 4.95 percent on Friday. Two-year notes slid 2/32, lifting yields to 4.81 percent from 4.77 percent on Friday. The 30-year long bond fell 5/32 to yield 5.07 percent, and five-year notes fell 3/32 to yield 4.87 percent.
Traders were looking ahead to debt auctions this week for an assessment of bond market sentiment after the recent rally. On Tuesday, the government will sell inflation-linked bonds, followed by two-year notes on Wednesday and five-year paper on Thursday. The market also will look to June housing data and figures on second-quarter US economic growth later in the week for more information on the troubled housing sector, and how it may have affected the broader economy.
Until then, investors will have time to analyse Federal Reserve Chairman Ben Bernanke's comments from last week's congressional testimonies, which indicated subtle but growing concern that the housing market had not reached bottom, and credit markets could spread subprime problems throughout the financial sector. But analysts said the Treasury market was unlikely to experience as much volatility as last week, barring surprising economic data.
"Right now we would need to have really terrible or really good information on housing or credit to have a huge impact on yields," said George Goncalves, chief Treasuries/agencies strategist at Morgan Stanley in New York. "In the very near term, we are more likely to move higher on rates, due to the new Treasury offerings this week," he added.