US Treasury debt prices rose on Monday in thin trading as vague worries over the outcome of the Greek debt swap and European leaders' ability to deal with the sovereign debt crisis drove some buyers back into safe-haven debt. Greece let slip another deadline on agreeing to painful terms being demanded by international lenders in exchange for urgently needed bailout funds.
Failure to strike a deal to secure the 130 billion euro ($170 billion) in rescue funds risks pushing the heavily indebted nation into a chaotic default that could threaten its future in the euro zone. Meanwhile, in France, President Nicolas Sarkozy was behind his socialist challenger for the post, Francois Hollande, in opinion polls ahead of the next presidential election. That news left market participants worried that Sarkozy could be replaced by a French leader who was less willing to participate in bailing out peripheral euro zone countries.
"Sarkozy is not leading in the polls-that's the number one thing that's worrying me," said Raymond Remy, a trader at Daiwa Securities in New York. Remy added that if Hollande unseated Sarkozy, "The conversation could be quite different." The safety bids on Greece overshadowed some earlier selling by traders and investors in advance of this week's quarterly refunding, in which the US Treasury plans to sell $72 billion in longer-dated supply.
The first leg of the refunding will kick off on Tuesday with a $32 billion offering of three-year notes, followed by a $24 billion auction in 10-year debt on Wednesday, and $16 billion in 30-year bonds on Thursday. Buying by the Federal Reserve on Monday also boosted prices in the market.
Longer-dated Treasuries prices garnered support as traders bought bonds before the Federal Reserve's expected purchase of $1.5 billion to $2 billion in debt due in 2036 to 2041. The Fed ended up buying $1.81 billion of debt. In light, choppy trading, benchmark 10-year Treasury notes were up 8/32 in price for a yield of 1.90 percent, while 30-year bonds rose 27/32 with their yield falling to 3.08 percent.
The 10-year and 30-year yields had risen 10 basis points and 12 basis points, respectively on Friday, their biggest one-day gains since late December. Also on Monday, the president of the St Louis Federal Reserve Bank, James Bullard, said a prolonged period of ultra-low interest rate policy could hurt the US economy in the long run.
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