LONDON: US Treasury futures rose to a 2-1/2 month high in Monday's European session as the threat of political upheaval in France and the Netherlands prompted a general flight into safer and more liquid assets.
Treasuries climbed in tandem with German Bunds as the prospects of a Socialist winning the French presidency and budget disagreements forcing elections in the Netherlands unnerved investors.
T-note futures rose to their highest since early February - 132-02/32, up 25/64 - while 10-year Treasury yields fell 4 basis points on the day to a seven-week low of 1.921 percent.
"A lot of it is Europe-led ... the market has a bit of flight to quality bid to it, especially given the uncertainty that is going to come around the French elections," a trader said.
First round French presidential election voting saw Socialist candidate Francois Hollande beat the incumbent Nicolas Sarkozy, raising jitters in the market that a change in leaders following the May 6 second round vote may lead to laxer fiscal discipline.
Problems in the euro zone also looked to be extending closer to the region's core as triple-A Netherlands fell into political crisis after a failure to agree on budget cuts made elections likely - adding to the already-high uncertainty in the region.
The surge in demand for low-risk assets gained pace when euro zone purchasing managers' index data showed a faster-than-expected private sector slump in April.
"That's obviously bond-friendly data and that's helping the market," said Craig Collins, a Treasuries trader at Bank of Montreal in London.
Looking beyond European factors, investors will be closely watching the assessment of the US economy following the Federal Reserve's two day policy meeting on April 24-25 as well as sales of $99 billion of US debt throughout the week.
"How supply is taken down is going to be a great barometer of appetite at these more-expensive levels," Collins said.
The US sells $35 billion two and five year notes on Tuesday and Wednesday, respectively, and $29 billion of seven-year debt on Thursday.
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