US 10-yr notes rise as EU optimism fades

Ten-year notes rose 20/32 in price to yield around 2.2518 percent, down 7.2 basis points from late US trade on Friday.

The 10-year yield climbed as far as 2.420 percent on Friday, its highest since early August, as a long-awaited plan to contain Europe's debt crisis caused investors to spurn safe-haven government debt.

But US bonds reversed early losses after an auction of Italian government paper on Friday suggested the euro zone rescue deal had not restored investor appetite for peripheral debt.

"It doesn't feel as though the market thinks the world is a better place as of yet and it seems to be a risk-off strategy today so Treasuries are doing much better," said a trader.

Some market participants may stay on the sidelines as some of the attention from Europe switches to key events such as the Fed's monetary policy meeting and US economic data, including jobs, due later this week, to gauge the state of the world's largest economy.

Federal Reserve policymakers are expected to tread cautiously at their meeting on Tuesday and Wednesday.

Improved US data have diminished the argument for further monetary easing, though Fed Chairman Ben Bernanke at his news conference on Wednesday is likely to repeat his disappointment at the pace of recovery and explore further options for supporting growth in face of the considerable risks ahead.

"The Fed's the focus this week but I don't expect to see anything dramatic as they're still seeing how the asset purchases are going in the long end regarding Operation Twist," the trader added.

Barclays Capital expects the 10-year yield to climb to 2.75 percent at the end of this year.

One possible support for the 10-year note lies near 2.44 percent, which roughly coincides with the 10-year yield's 100-day moving average and the 50 percent retracement of a July to September rally in 10-year Treasuries.

Copyright Reuters, 2011