US Treasuries prices rose on Monday on safety buying after the Greek parliament rejected the prime minister's presidential candidate, setting the stage for an election that the left-wing Syriza party, which opposes the EU/IMF bailout, could win.
Trading volume picked up slightly from Friday, which was the slowest day so far in 2014. Activity will likely stay well below average with many investors out before New Year's Day.
On Monday, Greek Prime Minister Antonis Samaras failed to get enough support for his nominee, Stavros Dimas, and called for a national election on January 25. Polls suggest voting would catapult the Syriza party to power. "That is one of the main reasons we are trading a bit better here ... there is more of a risk-off feel, given the headlines out of Greece," said Sean Murphy, a Treasuries trader at Societe Generale in New York. Typical month-end buying of longer-dated Treasuries added to price gains early, but the trend tapered off, dragging prices down from session highs.
Benchmark 10-year notes were up 11/32 in price to yield 2.209 percent, down 4 basis points from Friday. They were up as much as 16/32 with a 2.193 percent yield earlier. The yield curve steepened after hitting six-and-a-half-year lows on Friday due to bets that intermediate-dated debt will trail further versus long-dated bonds. Short- and medium-dated Treasuries, which are more sensitive to traders' perceptions on Federal Reserve policy than long-dated issues, have been hurt as recent upbeat economic data raised bets the Fed is closer to raising interest rates for the first time since 2006. Thirty-year bonds have been supported as a dearth of high-quality assets has led investors to buy them for higher yields and on concerns about deflation. Persistently low inflation might disrupt the Fed's efforts to normalise interest rates.
Companies' focus on share repurchases, instead of on increasing investment, will continue to subdue aggregate demand and price pressure, analysts said. The yield curve between five-year notes and 30-year bonds was last at 106.5 basis points on Monday, up from 105.5 basis points on Friday. Analysts see the US yield curve resuming its recent flattening in 2015. "No matter how you slice it, you'll see an even flatter curve next year," said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, New Jersey.