US government debt prices fell on Monday on reduced bids for lower-risk Treasuries as worries about Europe eased, snapping a four-session winning streak ahead of this week's $99 billion in coupon supply. The renewed market sell-off came even after dour comments on the US economy from Federal Reserve Chairman Ben Bernanke, which stoked hopes the US central bank would soon embark on a third round of bond purchases, dubbed QE3 by traders.
Longer-dated Treasury yields retested their 200-day moving averages after German business sentiment unexpectedly improved for a fifth straight month. Indications that Germany is prepared to allow two rescue funds to operate concurrently in an effort to bolster the firepower to combat the region's debt crisis also helped revive investor appetite for stocks and other growth-oriented assets, analysts said.
"The outlook on Europe seems to be a bit better," said Andrew Shulman, a Treasuries trader at Wunderlich Securities in New York. The Treasuries market briefly pared losses after Bernanke expressed concerns about the sluggish pace of US economic growth and historically high unemployment.
Bernanke's remarks rekindled some bets on QE3, although Philadelphia Fed President Charles Plosser said earlier the Fed should not have the unfettered ability to purchase assets. Benchmark 10-year US Treasury notes fell 13/32 to yield 2.28 percent, up 5 basis points from Friday. The 10-year yield was above its 200-day moving average of 2.2209 percent but below its 4-1/2-month peak of 2.399 percent set last Tuesday, according to Tradeweb.
The 30-year bond fell 1-7/32 for a yield of 3.37 percent, up almost 7 basis points from Friday. The 30-year is below its 4-1/2-month high of 3.4920 percent set last Monday and its 200-day moving average of 3.3717 percent. Meanwhile, the Fed sold $8.621 billion in government debt due February 2013 to July 2013, which is a part of its $400 billion "Operation Twist" program aimed to help hold down mortgage rates and other borrowing costs in a bid to foster economic growth.
In the "when-issued" market, traders expect the new two-year notes due March 2014 would sell at a yield of 0.3700 percent, which would be the highest yield at a two-year auction since last July. The current two-year note due February 2014 was unchanged in price with a yield of 0.36 percent.