NEW YORK; US Treasuries rose on Monday, pushing benchmark yields to three-month lows, after voters in France and Greece rejected leaders linked to austerity measures used to fight the euro zone debt crisis.
Bonds came off of their price highs, however, as stock markets stabilized after their initial bout of fear and benchmark 10-year Treasuries failed to break through price resistance at the 1.80 percent level in yields.
The bond market will face further headwinds from the US Treasury's $72 billion worth of bond sales from Tuesday through Thursday, which are part of its quarterly debt refunding.
Still, bonds are likely to remain supported. Greece could face fresh elections in a matter of weeks if its fragmented political parties can't form a government. France holds parliamentary elections in June.
"There is more turmoil and uncertainty going on, especially in Greece, so there is a little flight to quality bid," said Alan Mittleman, head of global US dollar rates trading at Societe Generale in New York.
"If no more bad news comes, with supply this week you might sell off a little but the market is trading a little bit jittery. It's going to be staying in a relatively tight range but it seems like yields will keep turning a little bit lower as the flight to quality bid hits."
The benchmark 10-year note was last trading 6/32 higher in price, pushing yields down to 1.87 percent from Friday's close of 1.89 percent.
Despite the worries over Europe, trade was fairly calm and volumes were light, Mittleman said. According to data from ICAP, volumes were half their recent average as of mid-morning.
But, investors are likely to remain on edge, especially since Greece's parliament must give approval next month for over 11 billion euros in extra spending cuts for 2013 and 2014 in exchange for more aid from the European Union and International Monetary Fund.
Monday's rally pushed 10-year yields down as far as 1.82 percent, their lowest since February 3. The market stopped short of 1.80 percent, which has proven to be tough resistance in recent months.
Investors rejected a push through 1.80 percent in late-January and early-February as well as in December.
The rally over European uncertainty extended gains made on Friday in the wake of downbeat US jobs data.
The price strength and historically low yields in Treasuries raised some questions about the strength of demand in the Treasury auctions this week. The Treasury will sell $32 billion of 3-year notes on Tuesday, $24 billion of 10-year notes on Wednesday and $16 billion of 30-year bonds on Thursday.
The Federal Reserve on Monday is scheduled to buy $1.5 billion to $2 billion of Treasuries maturing February 2036 through February 2042 as part of its latest stimulus program, which has been nicknamed "Operation Twist."
Ahead of the Fed purchase, 30-year bonds were trading 12/32 higher in price to yield 3.06 percent, down from 3.08 percent late Friday.
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