U.S. bonds rose on Monday, extending last week's gains as a deepening sell-off on Wall Street inspired a flight into safer government debt, sending the 30-year yield to its lowest in a week.
The safe-haven bids built on earlier buying from traders who sought to pare bets the Federal Reserve might increase policy rates in the first half of 2015 after a March jobs report missed their upbeat expectations.
The market has strengthened in advance of the sale of $64 billion in coupon-bearing securities, which typically causes bond prices to fall as investors make room for the supply.
"The driving factors this week are supply and whether the stock market falls off the cliff," said Thomas Roth, executive director of U.S. government trading of Mitsubishi UFJ Securities in New York.
Government debt prices jumped on Friday after the government reported a gain of 192,000 nonfarm payroll jobs in March, which was solid but fewer than what some traders had anticipated.
They had thought a figure of more than 200,000 would cause Fed policy-makers to consider an earlier-than-expected schedule to raise short-term interest rates to prevent the economy from overheating.
"After this latest payrolls number, people reached the conclusion they were too ambitious with the Fed's first rate hike," said Mike Lorizio, head of Treasuries trading at John Hancock Asset Management in Boston.
Benchmark 10-year Treasurys were up 6/32 in price to yield 2.70 percent, while the was 3/32 higher, yielding 1.68 percent.
The 30-year bond rose 15/32 for a yield of 3.56 percent.
The three major U.S. stock indexes were lower with the Standard & Poor's 500 on track for its steepest three-day drop in two months.
Short-term interest rates futures implied traders scaled back their expectations on a Fed rate hike in April 2015 to 38 percent early Monday from 50 percent before the March payrolls report, according to CME's FedWatch, which calculates traders' view on changes in Fed's rate policy.
On the other hand, more Wall Street economists see a likelihood the Fed might tighten monetary policy in the first half of next year as evidence builds the economy has regained some of the momentum lost during a harsh winter, according to a Reuters survey conducted on Friday.
Friday's market rally was led by medium-term Treasurys with the five-year yield, which traders commonly refer as the belly of the U.S. yield curve, posting its biggest drop since late January as some traders closed out bets yields would rise further on a hefty March payroll reading.
"I like the belly in the very near term. It gives decent returns with a minimum risk in a sell-off," said Sharon Stark, chief fixed-income strategist at D.A. Davidson & Co. in St. Petersburg, Florida.
Renewed interest in Treasurys should bode well for this week's upcoming supply, analysts said.
The U.S. Treasury Department will sell $30 billion in three-year notes on Tuesday, followed by a $21 billion reopening of a prior 10-year issue on Wednesday and a $13 billion auction of a previous 30-year bond on Thursday.
Meanwhile, the U.S. Fed bought $1.018 billion in long-dated bonds due in 2039 to 2043, part of its $30 billon intended purchases of Treasuries in April.
Two senior U.S. policymakers, who are not voting members of the Federal Open Market Committee, spoke on Monday.
St. Louis Fed President James Bullard said at an event in Los Angeles there would be little benefit if the global central banks coordinated their efforts.
Chicago Fed chief Charles Sevens meanwhile gave opening remarks at an event in Chicago.