TOKYO: US 10-year Treasuries rallied in Asian trading on Monday, sending yields to historic lows, as heightened fears about Spain's ability to stave off a sovereign bailout prompted investors to seek out safe-haven fixed income assets.
Over the weekend, the Spanish region of Murcia said it would seek government financial assistance, and media reported half a dozen governments were ready to follow in the footsteps of Valencia, which said on Friday it would seek help.
Fears also rose about Greece's ability to stay afloat, after its prime minister said on Sunday that the country was in a "Great Depression" similar to the one in the 1930s, as international lenders were scheduled to gather in Athens to discuss the terms of further rescue payments.
The European Central Bank said on Friday that Greek government bonds will be ineligible for banks to use as collateral to borrow from the ECB from July 25.
The 10-year yield was at 1.4415 percent, after dropping as low as 1.4365 percent earlier in the Asian session. That was its lowest level since the early 1800's, according to data compiled by Reuters.
"It is easy to understand that the European situation is not good, which is driving yields down. From now, a lot of the market's direction will also depend on US data," said Tomoaki Shishido, fixed income analyst at Nomura Securities.
Any signs that the slowdown in the US economy is stabilising and weathering the effects of Europe's credit storm would lesson the chances of further stimulus from the Federal Reserve, which could finally put a floor under yields, strategists say.
Fed Chairman Ben Bernanke has said the central bank remains prepared to act if necessary but has so far refrained from outlining any steps.
Investors expect the Fed to eventually decide to either make a third round of bond purchases, known as quantitative easing, or cut the interest it pays banks on their excess reserves.
Expectations of the latter helped push the yield 2-year Treasuries below the 0.2 percent level for the first time since September. It dropped as low as 0.1975 percent before rising to 0.2015 percent, still short of 0.210 percent in Friday's late US trading
"At these yield levels, it is difficult to think about selling Treasuries right now," said a fixed-income fund manager at a Japanese trust bank in Tokyo.
This demand is expected to support the Treasury Department's debt sales this week, he said.
Treasury will sell a combined $99 billion in two-year, five-year and seven-year notes next week, starting on Tuesday with $35 billion auction of two-year notes.
The yield on 30-year bonds stood at 2.532 percent, also down from 2.541 percent in Friday's late US trade.
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