U.S. long-term bond prices rose for a second straight session on Tuesday, boosted by a combination of month-end buying by institutional investors and a relatively weak two-year auction.
There has been demand for long-term Treasurys since the middle of May for month-end purposes, analysts said, with volume moderate following a long holiday weekend in the United States.
Trading volume on Tuesday was 78 percent of the 10-day norm, which, according to CRT Capital, was unusual, given the return from a Monday holiday and partial session last Friday.
"There have been significant month-end extension trades going on, where the (bond) index actually extends," said Tom di Galoma, head of fixed income at ED&F Man in in New York. "It tells fund managers who are tied to an index to extend their duration in their portfolios."
Investors tend to extend the duration of their bond holdings when they have a good month, analysts said, driving a rally in the long end. For the month of May, both U.S. 10-year notes and 30-year bonds have outperformed.
And usually in the months of February, May, August and November, the U.S. Treasury market sees the largest duration extension trades mainly because of the new supply of 10-year notes and 30-year bonds.