NEW YORK: Longer-dated US Treasury debt prices fell on Monday, reversing early gains after ratings agency S&P revised the US credit outlook to negative and said the path to addressing budget deficits was not clear.
Still, benchmark 10-year Treasury yields touched the lowest in over three weeks early in the day because of worries about Europe's debt crisis, and some analysts pointed to a technical picture that could herald lower Treasuries yields.
While S&P affirmed its AAA sovereign credit rating on the United States, it said very large US budget deficits and rising government indebtedness, and no clear path to addressing these issues, signaled there was at least a one-in-three likelihood that it could lower its long-term rating on the US within two years.
The change undermined the appeal of longer-term US government debt, and benchmark 10-year Treasury notes traded 5/32 lower in price to yield 3.43 percent, up from 3.41 percent late Friday.
"What the agencies want to see is real steps taken to improve the situation. In the absence of that a downgrade is not far," said Tom Porcelli, US economist at RBC Capital Markets in New York.
Benchmark yields reached as low as 3.37 percent early on Monday, marking the lowest since March 24, in safe-haven bidding driven by worries over the eventual outcome of a debt crisis in Greece.
Greece denied a newspaper report saying it wants to extend maturities on its outstanding debt, but markets speculated anyway that some sort of Greek debt restructuring was in the works.
Yields also traded below their 100-day moving average for the first time since March 17, in a move which some investors interpreted as a possible bullish signal for bonds.
"We believe that the confluence of bullish factors, particularly turmoil in foreign markets -- euro zone concerns -- as well as generally positive treasury dynamics, like technicals and the passage of supply, should override bond bearish factors such as the impending debt ceiling debate and the longer-run fiscal profligacy of the US," said George Goncalves, head of US interest rates strategy at Nomura Securities International in New York.
The early move lower in rates bolstered a near-term bullish outlook for bonds, said William O'Donnell, head of US Treasury strategy at RBS Securities in Stamford, Connecticut.
"We have reached our tactical bull target at 3.40 percent in 10-year notes. A close below this minor resistance sets us up for a push to major range resistance at 3.25 percent," O'Donnell said, adding "overall technical conditions, (including) sentiment, momentum and positioning looks favorable for Treasuries near term," O'Donnell said.
The 30-year bond was trading 25/32 lower in price to yield 4.52 percent, up from 4.47 percent late Friday, while two-year Treasury notes were 2/32 higher to yield 0.67 percent from 0.70 percent.
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