NEW YORK: US Treasuries prices re-motivated appetite investor for fuelling the bid for safe-heaven US government debt, on Monday.
The Federal Reserve Bank of New York's suspension of troubled MF Global from conducting new business with the New York Fed added to the nervousness.
But demand for safe-haven US debt was motivated by more than the troubles of one firm.
"Difficulties for individual companies can sometimes cause a safe-haven bid, but there are more than enough macro stories in Europe, Japan and China this morning to explain why bonds are moving as they are," said Andrew Milligan, head of global strategy at Standard Life Investments in Edinburgh.
"Euphoria about the euro zone package (to address the continent's debt crisis) has been tempered as the harsh reality of the detail begins to bite," he said, pointing to forecasts that France could enter recession this winter as banks are forced to cut back on lending.
"This is encouraging speculation that the European Central Bank might cut interest rates, if not this week, then at its next meeting," Milligan said, referring to the European Central Bank.
Benchmark 10-year Treasury notes rose 26/32 on Monday, their yields falling to 2.22 percent from 2.32 percent late on Friday.
Thirty-year Treasury bonds rose 2-13/32, their yields falling to 3.25 percent from 3.37 percent late on Friday.
Soaring Italian and Spanish bond yields prompted the ECB to buy Italian and Spanish debt.
That briefly pushed two-year Italian yields down by around 15 basis points before they returned to nearly their highest levels since the ECB began buying the paper in September.
Belgium's debt costs rose at a bond auction that drew reasonable demand, reflecting pressure on non-core euro zone issuance from a market uneasy about implementation of last week's anti-crisis plan.
The safety bid that drove US Treasuries prices higher also lifted safe-haven German government bonds.
Investors worry whether the write-down on Greek debt agreed to by its private creditors is big enough to put the country's debt back on a sustainable path.
Japan sold the yen for the second time in less than three months after it hit another record high against the dollar, saying it intervened to counter speculative moves that were hurting the economy.
In Vienna, China President Hu Jintao said Europe had the capacity to overcome its economic problems but offered no indication as to whether Beijing could play a major role in helping solve the euro zone's debt crisis.
As for MF Global, the New York Fed said the firm would be suspended until it established, to the satisfaction of the New York Fed, that it was "fully capable of discharging the responsibilities" set out in the New York Fed's policy on relationships with primary dealers.
Primary dealers serve as trading counterparties of the New York Fed in its implementation of monetary policy.
The Institute of Supply Management-Chicago releases its October index of manufacturing activity at 9:45 a.m. (1345 GMT). Economists forecast a reading of 59.0, compared with 60.4 in September.
A two-day Federal Reserve policy meeting begins on Tuesday. Fed officials remain worried about the US economy's health and are looking at ways to offer more monetary stimulus including helping distressed housing markets.
"The bottom line is they want the economy to grow much faster," said Robert Tipp, chief investment strategist for Prudential Fixed Income.
"(The Fed does) not expect any help from the fiscal side and given what's going on with wages and real estate prices, they have very little concern about the potential for wage-price spiral here," he said. The government releases October US employment data on Friday.
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