US Treasuries prices gained modestly on Monday in light trading in line with rallying European bonds on expectations the European Central Bank will use more stimulus to revive flagging growth in the region. ECB President Mario Draghi said Friday the bank was prepared to respond with all available tools if euro zone inflation drops further. Investors took this to mean the ECB could start an asset-purchase program or other stimulus measures, which would boost assets such as stocks and bonds.
Draghi's comments caused yields on most euro zone government bonds to fall to record lows, with Treasuries also benefiting from the rally. "Part of it is the rally in European rates. Generally markets are pricing for a higher chance of the ECB being more accommodative," said Michael Chang, an interest rate strategist at Credit Suisse in New York.
Benchmark 10-year notes were last up 3/32 in price to yield 2.40 percent, down from 2.41 percent late Friday. Treasuries also gained earlier on Monday on weak business sentiment data in Germany for the fourth month running and after a row over the lack of growth led the French government to resign. "We had a small safe-haven bid," said John Canavan, fixed income analyst at Stone McCarthy Research Associates in Princeton, New Jersey.
Durable goods data on Tuesday will be the next focus, before the Treasury is also due to begin auctioning $93 billion in new coupon-bearing supply this week. "I think durable goods orders in the morning will get more attention, in part because of some of the uncertainty about it," Canavan said. The Treasury will sell $29 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday. It will also sell $13 billion in two-year floating rate notes on Wednesday. Trading was modest on Monday ahead of the US Labour Day holiday on September 1, with traders in Britain out for a bank holiday on Monday.