Treasuries rally

US Treasuries prices rallied on Monday as fears that Portugal could follow Greece into a difficult debt restructuring caused investors to rush to the perceived safety of US government debt. Yields paid on benchmark 10-year Treasuries fell to their lowest so far this year, as prices for insuring against Portugal's debt default hit all-time highs. Debt protection costs for Italy and Spain also rose, underscoring investors' deteriorating sentiment in the region.
"The main concern right now is if the situation in Greece will trickle out to Spain, or Portugal or Italy," said Jason Rogan, director of Treasuries trading at Guggenheim Partners in New York. "These countries are much larger in size and the effects of them having similar issues to Greece will be much more worrisome," he said. Greece's inability to reach a definitive agreement with private creditors during the weekend weighed on market sentiment.
Investors fear that, if a voluntary agreement with the private sector is not reached, the European Central Bank will have to share part of the burden, thereby weakening its ability to support other troubled euro zone countries by purchasing their bonds. Not even news that EU leaders had reached an agreement to introduce a permanent euro zone bailout mechanism as of July eased the tension in debt markets.
Benchmark 10-year US Treasuries rose 17/32 in price, while their yields fell to 1.83 percent, the lowest level since December 19, 2011, and down from 1.89 percent late on Friday. Pries for 30-year Treasuries rose as much as two points during the session, with yields falling below 3 percent for the first time since January 18. They were up 1-22/32 in the afternoon to yield 2.97 percent.
Treasuries traders ignored data that showed US consumer spending was flat in December as households took advantage of the largest rise in income in nine months to boost their savings. The next major US economic report will be Friday's monthly employment data for January, though European headlines are seen likely to continue to trump US data. Among those, investors will pay attention to Spain's efforts to auction 3.5 billion to 4.5 billion euros ($4.6-$5.9 billion) in bonds on Thursday.
"Even if we get a great payroll number, it could send the 10-year yield to 2.10 percent. At the end of the day, it's all about Greece," said Craig Dismuke, chief economic strategist at Vining Sparks in Memphis, Tennessee. Five-year Treasuries yields fell to lows not seen since at least the 1960s, at 0.72 percent. The yields have fallen from as high as 0.93 percent last week before the Fed's statement.