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US bond prices gain as shutdown seen hurting economy

Bonds: U.S. Treasurys Chart

U.S. bond prices gained on Monday as lawmakers in Washington showed no progress towards ending a partial government shutdown, raising concerns about its impact on economic growth, and on concerns over the looming showdown over raising the country's $16.7 trillion debt ceiling.

The government moved into the second week of a shutdown on Monday with no end in sight. Many U.S. economic releases, including crucial monthly payrolls data that that had been scheduled for last Friday, have been delayed due to the shutdown.

"The uncertainty in Washington is the clearest touchstone for the push towards Treasuries prices, obviously the longer that the government is shut down the more damaging it potentially becomes for the economy," said Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut.

Investors are also focused on the release on Wednesday of minutes from last month's Federal Reserve policy meeting, which could reveal more about why the central bank shocked markets by deciding not to begin reducing its $85 billion a month bond purchase program.

The longer the shutdown lasts, the less likely the Fed is to begin cutting back on bond purchases, especially as it is unable to view government-issued data to gain a sense of the strength of the economy.

(Read more: Wall Street gets ready to trade defaulted US debt)

Benchmark 10-year Treasurys were last up 4/32 in price to yield 2.633 percent, down from 2.65 percent late on Friday. The yields have dropped from 3.00 percent, the highest in over two years, on September 6.

Squabbling over raising the country's debt ceiling was also hurting riskier assets such as stocks, which may have added a bid to Treasurys.

—By Reuters.