US Treasury prices rose on Monday as foreign investors swooped in and bought Treasuries following a market selloff Friday that took yields on benchmark 10-year notes to their highest since Britain's surprise vote to exit the European Union in late June. Comments from Federal Reserve Chair Janet Yellen and Vice Chair Stanley Fischer on Friday, perceived as raising the likelihood of the Fed boosting short-term interest rates this year, spurred selling in Treasuries and provided an opening for overseas investors seeking US government debt, analysts said.
"Even though it looks like the Fed may tighten in September and will probably tighten by December, people are still looking at Treasuries saying, 'I like those yields,'" said Evercore ISI strategist Stan Shipley. Yellen said at a three-day gathering of world central bankers in Jackson Hole, Wyoming, that the case for raising rates had strengthened in recent months. In a later television interview, Fischer said Yellen's remarks were consistent with the possibility of two rate hikes this year.
Prices rose to new session highs in afternoon trading, which Shipley attributed to continued interest from foreign buyers during North American trading hours. Benchmark 10-year US Treasury prices rose 20/32 in price to yield 1.566 percent. The 30-year Treasury bond rose 1-23/32 to yield 2.216 percent.
Yields for government debt in much of Europe are at or near all-time lows and both German and Japanese government bonds hold negative yields out to 10 years of maturity. Monday's price action was exaggerated by light volumes with many UK investors out for a bank holiday and many in the US out ahead of next week's Labor Day holiday. Others were exercising caution before Friday's US non-farm payrolls report, said Lisa Hornby, US fixed income portfolio manager at Schroders.
"Any moves that you're going to see are going to be exacerbated by the fact that there aren't tons of people in the office to take the other side of positions," Hornby said. Treasuries prices held gains after US consumption and personal income data matched economists' expectations for July. Consumer spending, which accounts for more than two-thirds of US economic activity, increased for a fourth straight month in July and was revised higher for June. While that was supportive of rising inflation that could point towards a Fed rate hike for the first time since December, the data did not exceed expectations, meaning it should have been priced in, Hornby said.