NEW YORK: US government debt prices rose modestly on Tuesday as renewed worries about Europe's debt crisis and the struggling US economic recovery bolstered expectations the Federal Reserve will undertake another massive round of monetary stimulus.
Gains were limited however, with some reluctance to push prices significantly higher going into this week's sales of $66 billion of US government debt.
Adding to Friday's weak US employment report were growth concerns in the euro zone, with Spain taking center stage in the region's debt crisis.
As European markets reopened after the Easter break, German Bund yields hit their lowest level since September and Italian and Spanish bond yields continued their march higher after sentiment towards the two countries soured following a weak Spanish bond sale last week.
"The bad news on employment brought about more doubt about the global recovery and how vulnerable we are to the double-dip (recession)," said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts.
Benchmark 10-year Treasury notes were trading 4/32 higher in price to yield 2.04 percent, down from 2.05 percent late Monday, while 30-year bonds were 8/32 higher to yield 3.18 percent from 3.20 percent.
At 2.04 percent, 10-year yields still hover close to the four-week lows reached Monday. Yields fell as far as 2.019 percent that day after US jobs data came in well below expectations last week, casting doubt over the strength of the US economic recovery.
Before the jobs data, market participants had interpreted recent comments from Fed policy-makers and improved data to mean the bar for further monetary stimulus was extremely high.
However, a Reuters poll on Monday showed most major Wall Street firms now expect anemic growth in the US jobs market and a struggling economic recovery to force the Federal Reserve to undertake another round of monetary stimulus, most likely to be announced in June.
The Federal Reserve was scheduled to buy $5.75 billion to $7 billion of longer-dated Treasuries in two operations on Tuesday as part of its latest stimulus program, which has been nicknamed "Operation Twist." Under Twist, the Fed is selling shorter-dated holdings and buying longer-dated debt to extend the maturity of its portfolio. The program is scheduled to last through June.
While the Fed is buying, the US Treasury will sell $32 billion of three-year notes on Tuesday, then $21 billion of reopened 10-year notes Wednesday and $13 billion of reopened 30-year bonds on Thursday.
Ahead of Tuesday's auction, three-year notes were trading unchanged in price to yield 0.45 percent. In the when-issued market, considered a proxy for where the yield might come in at auction, three-year notes were trading with a yield of 0.46 percent.
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