NEW YORK: US Treasury debt prices rose on Monday, with benchmark yields dipping to the lowest in nearly two months as the threat of political upheaval in France and the Netherlands spurred a general flight from stocks to safer and more liquid assets.
Treasuries climbed in tandem with German Bunds as the prospects of a Socialist winning the French presidency and budget disagreements forcing elections in the Netherlands unnerved investors.
Spain's fiscal situation added to the worries about Europe, and Spanish 10-year debt yields rose above 6 percent. Spanish debt rates north of 6 percent are seen as unsustainable.
Markets took direction from "overnight action in the euro zone amid ongoing concerns over Spain, and following France's first-round presidential elections," said Michael Englund, chief economist at Action Economics in Boulder, Colorado.
Stocks fell more than 1 percent, and benchmark 10-year Treasury notes rose 15/32 in price to yield 1.92 percent, down from 1.97 percent late Friday. Yields dipped to 1.91 percent, marking the lowest since Feb. 28.
Socialist candidate Francois Hollande beat incumbent Nicolas Sarkozy in first-round French presidential voting, raising market jitters that a change in leadership following the May 6 second-round vote may lead to a more lax fiscal discipline.
Problems in the euro zone also looked to be move closer to the region's core as triple-A Netherlands fell into political crisis after a failure to agree on budget cuts. Dutch Prime Minister Mark Rutte resigned on Monday, but did not say whether elections would be called, adding to the already high uncertainty in the region.
The surge in demand for low-risk assets gained pace when euro zone purchasing managers' index data showed a faster-than-expected private sector slump in April.
"Fears about the euro zone were again to the fore on Monday," said Julian Jessop, chief global economist at Capital Economics in London, adding "the real news was the recession signals from the April euro-zone PMI and the results of the first round of the French elections."
Looking beyond Europe, investors will closely watch the assessment of the US economy following the Federal Reserve's 2-day policy meeting on April 24-25 as well as sales of $99 billion of US debt throughout the week.
The government will sell $35 billion 2- and 5-year notes on Tuesday and Wednesday, respectively, and $29 billion of 7-year debt on Thursday.
Ahead of the sales, 30-year bonds traded 1-6/32 higher in price to yield 3.07 percent, down from 3.13 percent late Friday.