US Treasuries prices surged on Monday as news Greece will miss its deficit target drove stocks lower amid bets the Federal Reserve's latest stimulus program will contribute to a further erosion of rates. The Treasuries market made a strong start to the fourth quarter after a robust third quarter, in which longer-dated debt prices recorded their best performance since the last three months of 2008, at the height of the global financial crisis.
Some analysts are calling for the drop in yields to continue in light of the worries over contagion from Europe's debt crisis and stalled US economic growth. The 30-year bond traded 3-8/32 higher in price for a yield of 2.77 percent, down from 2.92 percent late Friday. Bonds were on track for the biggest single-day drop in yield since September 22, the day after the Fed announced the stimulus program dubbed "Operation Twist."
Over a week ago, bond yields touched 2.739 percent, the lowest level since January 2009. US benchmark 10-year Treasury notes traded up 1-4/32 for a yield of 1.79 percent, down from 1.92 percent late Friday. More than a week ago, the 10-year yield touched 1.674 percent, the lowest level in at least 60 years.
"Overall, people are looking at lower stocks, continued problems in Europe with the risk of contagion, a slowing economy here in the US, and the Fed with Operation Twist," said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson & Co in Seattle.
That combination of factors could eventually push benchmark yields to as low as 1.50 percent, while bond yields could dip to 2.50 percent, Hurley said. The Fed's "Operation Twist" debuted on Monday with a $2.50 billion purchase of long-dated bonds due in February 2036 to August 2041. The Fed had planned to buy $2.25 billion to $2.75 billion of these long-dated issues.
It will conduct three more purchases of longer-dated debt this week and one sale of short-dated issues on Thursday. The US central bank's $400 billion bond program is aimed at lowering long-term borrowing costs like mortgage rates in an attempt to boost loan activity and fire up the economy.
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