Benchmark U.S. Treasurys prices rose on Monday, extending last weeks' rally as investors snapped up safe-haven government bonds on fears that growth in the U.S. economy is slowing.
After a spate of disappointing data last week, markets are largely on hold for this week's non-farm payrolls report. Analysts expect that the closely-watched figure will also disappoint, even as data on Monday showed U.S. consumers continue to spend.
Earlier, the Commerce Department reported consumer spending increased 0.2 percent in March. That followed a 0.7 percent jump the previous month and a 0.3 percent gain in January.
Although U.S. economic growth regained speed in the first quarter, the pace was less than expected, heightening fears an already weakening economy could struggle to cope with deep government spending cuts and higher taxes.
The data came after Spain, the euro zone's fourth-biggest economy, said growth will contract by 1.3 percent this year, more than previously forecast, while unemployment will hold at record highs over the next two years.
"The economic conditions continue to deteriorate, not just here but globally, and it continues to fuel the drive for duration," said Tom Tucci, head of Treasurys trading at CIBC in New York.
Investors are now focused on next Friday's monthly payroll's report, which is expected to show that employers added 150,000 jobs in April, according to the median estimate of economists polled by Reuters.
Some traders fear, however, that the number may again disappoint, after employers added only 88,000 jobs in March, far below expectations of 200,000.
"If we were to see another month of weak data, we could see yields grind lower," said Mike Cullinane, head of Treasurys trading at D.A. Davidson in St. Petersburg, Florida.
Month-end buying could also boost bond demand early next week.
Benchmark 10-year notes were up 3/32 in price on Friday to yield 1.66 percent, just above a four-month low of 1.64 percent reached last week after a false tweet of an explosion at the White House.
Traders said there is technical resistance on the 10-year notes at yields of around 1.65 percent.
The 30-year bond rose 8/32 in price to yield 2.85 percent, lower than Friday's close.
Yields on two-year notes also dropped to their lowest levels since August as stronger-than-excepted tax receipts at the U.S. Treasury led to speculation that the government would further reduce the already dwindling supply of Treasurys bills, leading some investors to reach out to coupon-bearing debt.
The Treasury on Thursday said that it will sell $76 billion in bills next week, $9 billion less than it typically sells.
"People have had to scramble for collateral and it may spill over into coupon debt," said CIBC's Tucci.
Two-year note yields dropped 1 basis point to 22 basis points.
Bond investors will also be watching for signals from Federal Reserve policy makers on the U.S. central bank's bond purchase program after the Fed's meeting next week, on Tuesday and Wednesday.
Some think Chairman Ben Bernanke and other top Fed officials will shift their focus back to buying more bonds to help an economy that continues to grow below expectations, instead of drawing up a plan to begin reducing stimulus, something that they have discussed at policy meetings in recent months.
The Federal Reserve on Friday bought $3.378 billion in bonds that will mature in August 2020 to February 2023 as part of the program. It will purchase between $1.25 billion and $1.75 billion in debt due 2036 and 2043 on Monday.