Treasury debt prices rose Monday as investors sought a safe haven for their assets in continued worries that a housing-led slowdown could be dragging the U.S. economy into recession.
Gains were limited however by a slightly stronger stock market, even though financial stocks were being hit by persistent fears over the impact of a global credit crisis that began with problems in the risky subprime mortgage sector.
"There are all these rumors of securities dealers losing a lot more money in subprime, so there has still been better buying in Treasurys even though there has been some buying in stocks," said Ted Ake, head of bond trading at Mizuho Securities USA in New York.
Benchmark 10-year Treasury notes were trading 9/32 higher in price for a yield of 3.61 percent from 3.65 percent late Friday, while 2-year notes were 1/32 higher in price for a yield of 1.92 percent from 1.95 percent.
Two-year yields are trading not far above their lowest since 2004 as investors seek shelter in the highest-rated government securities, as they generally have for the past seven months.
Stocks began the day trading lower following a plunge in the shares of insurer AmericanInternational Group after its auditors said the company failed to account properly for derivatives related to risky debt known as collateralized debt obligations.
"There is an increasing realization that this is not (just) a subprime issue: this is a credit bubble issue that is hitting everywhere," said T.J. Marta, fixed income strategist with Royal Bank of Canada Capital Markets in New York.
With no data releases scheduled Monday, bond investors looked ahead to the release Wednesday of January retail sales as a gauge of slipping consumer spending and to Federal Reserve Chairman Ben Bernanke's testimony to Congress on Thursday about the state of the economy.
Bond investors hope to glean Bernanke's latest views on the possibility of recession in the United States and on inflation pressures.
Five-year Treasury notes were trading 6/32 higher in price for a yield of 2.66 percent from 2.70 percent late Friday, while 30-year bonds were 16/32 higher for a yield of 4.40 percent from 4.43 percent.