US Treasuries prices were unchanged on Monday as safe-haven demand for US government debt, fed by worries about the euro zone, was offset late in the day by profit-taking on benchmark yields hovering just below 2 percent. Concern over Europe centred around Spain, where Spanish 10-year government bond yields broke through the 6 percent mark for the first time since the beginning of December. Spain has acknowledged that it has probably tipped into its second recession since 2009.
That situation drew investors to safe-haven assets like German bunds and US Treasuries, and US government debt traded higher in price, and lower in yield, through much of the day. Price gains were pared however with some investors cashing in on the recent rally that pulled benchmark yields below the psychologically important level of 2 percent.
The late day price pullback was a case of "profit-taking," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co in Seattle. "At the yield levels that we have fallen to, we need further reasons to tack on additional price gains," she said.
Benchmark 10-year Treasury notes last traded unchanged in price from Friday to yield 1.99 percent. Yields on Monday dipped to 1.95 percent, marking the lowest in nearly six weeks. "Spain remains the focal point driving flight-to-quality demand for Treasuries and given the volatility and uncertainty of the impact of higher borrowing costs in the region we expect these concerns to persist," said Ian Lyngen, government bond strategist at CRT Capital Group in Stamford, Connecticut.
The conservative Spanish government says it is committed to making major budget cuts, but investors worry a recession could make it impossible to meet deficit targets and that Spain would have to seek some kind of international bailout, like Greece, Ireland and Portugal.
Monday's US retail sales data had little impact on bond market participants' perceptions of Federal Reserve policy. Sales rose 0.8 percent, more than expected in March, as Americans took high gasoline prices in stride and bought a range of goods, suggesting the economy's growth in the first quarter did not slow as much as many had feared. But analysts said the market was more focused on the euro zone. Appetite for Spanish debt will be tested on Thursday when Spain issues bonds in the primary market.
Unless robust US economic data presents a challenge, 10-year US Treasury yields could remain near or below 2 percent on euro zone concerns. Those concerns argue for an extended period of monetary easing and further steps along that course, a bullish path for bonds.