NEW YORK: US Treasury debt prices rose on Monday and benchmark yields fell, hovering just above historic lows, on bets that the Federal Reserve will embark on large-scale bond purchases to stimulate a sluggish US economy.
Disappointing domestic job growth, together with Europe's debt crisis and China's slowing business activity, have increased speculation the US central bank is preparing to buy more bonds to lower long-term interest rates in a bid to spur borrowing and demand, analysts said.
"Economic momentum is trending lower," said Sharon Stark, chief fixed income strategist at Sterne Agee & Leach in Birmingham, Alabama. "Traders are preparing for another round of quantitative easing after three straight months of below-consensus jobs growth."
Wall Street economists see a 70 percent chance the Fed will engage in a third bound of quantitative easing, nicknamed QE3, according to a Reuters poll conducted shortly after the June payrolls report on Friday.
The US Labor Department said on Friday US employers added 80,000 jobs in June, below the 90,000 predicted by economists polled by Reuters.
While jobs growth has slowed in recent months, some investors reckoned economic conditions had not yet deteriorated enough for the Fed to begin buying more Treasuries or mortgage-backed securities.
"It's not weak enough yet for the Fed to come in," said Chris Orndorff, senior portfolio manager at Western Asset Management Co. in Pasadena, California, which manages $447 billion in assets. "They have to save some ammunitions for Europe."
The protracted struggle for Spain and Greece to manage their debt has rekindled investors' push into US and German government debt that are perceived as safer investments.
"Europe is giving people another reason to buy bonds," Stark said. "More and more money will flow into the US bond market."
In Asia, China's inflation slowed more than expected in June, suggesting demand for its goods from Europe and the United States was falling.
Benchmark 10-year US Treasuries notes last traded up 4/32 in price at 101-31/32 for a yield of 1.54 percent, down 1.4 basis points from late on Friday.
The 10-year yield is about 10 basis points above the level set on June 1, which was the lowest going back to the early 1800s, according to data gathered by Reuters.
On lighter-than-usual trading volume, the 30-year bond was up 9/32 at 107-6/32 to yield 2.65 percent, down 1.3 basis points from Friday's close.
With renewed appetite for bonds, the Treasury Department's auctions of coupon-bearing debt should fare well, analysts said.
The Treasury will sell $32 billion in three-year notes on Tuesday; $21 billion in 10-year debt on Wednesday and $13 billion in 30-year bonds on Thursday.
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