U.S. Treasury debt prices rose Monday as the failure of two small banks over the weekend renewed jitters about the financial sector and spurred safety bids for bonds.
Analysts downplayed the price bounce on light volume, as many investors moved to the sidelines ahead of the government's announcement borrowing plan Wednesday and its monthly readings on non-farm payrolls Friday.
"People are just very skittish here ... You still have all the worries about the financial sector," said Richard Lee, managing director of fixed income at Wall Street Access in New York.
On Friday, the Federal Deposit Insurance Corp seized two small U.S. banks, First National Bank of Nevada and First Heritage Bank of California, and sold them to the Mutual Omaha Bank.
A housing rescue package aimed to helping struggling homeowners and shoring up confidence in mortgage giants Fannie Maeand Freddie Maccould offset some of the gloom in the financial sector. The bill sailed through Congress last week and is poised to be signed into law by President Bush in the coming days.
Benchmark 10-year Treasury notes were trading up 17/32 for a yield of 4.04 percent, down from 4.11 percent late on Friday, while 2-year notes were 4/32 higher for a yield of 2.64 percent, down from 2.71 percent on Friday.
U.S. stocks were mixed in early trading.
The cost to deal with troubled banks and their drag on the economy have led analysts to raise their budget deficit forecasts for the next fiscal year.
Worries about the financial consequence stemming from more bank failures have weighed on Treasury prices.
"What is that going to cost the taxpayers? People are worried how much more (debt) the Treasury will issue," Wall Street's Lee said.
Rising expenditure, along with falling tax receipts, will likely force the Treasury to increase its borrowing. Analysts forecast that the Treasury will opt to sell $15 billion to $16 billion in benchmark 10-year notes and $9 billion to $10 billion in 30-year bonds, as a part of its August refunding.
Moreover, they said there is a strong likelihood the government will bring back a retired maturity such as the three-year note.
In the meantime, the Treasury is slated to announce its financing estimates at 3 p.m., while the Office of Management Budget will offer an update on its budget outlook.