Treasurys edge higher on diminishing inflation fears

US 10-YR
US 30-YR

U.S. Treasurys prices were mostly flat on Monday amid receding investor worries over an earlier-than-expected interest-rate hike by Federal Reserve policymakers.

Treasurys rallied on Friday, when U.S. employment data for July showed flat wage gains for hourly workers and a rise in the national unemployment rate to 6.2 percent.

The data calmed fears about inflation, which could spur higher interest rates and lower bond prices.

Intermediate maturity Treasurys rallied earlier, extending Friday's gains. "The market seems comfortable with the Fed statement last week and the uptick in unemployment," says Jake Lowery, portfolio manager at Voya Investment

Management in Atlanta. "We are likely to stay in a low volatility environment for some time."

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A Reuters poll on Friday showed that a majority of Wall Street's top bond firms see no move by the Fed to increase interest rates from historic lows before the second half of next year.

"The market is focused on how long the Fed can be expected to maintain its dovish tone. That's why today's rally has been focused on the shorter maturities," Lowery said.

Benchmark 10-year notes were last up 2/32 in price to yield 2.48 percent, down from 2.495 percent at Friday's close, while the 30-year bond turned lower to yield 3.29 percent.

Among intermediate maturities, the seven-year note was ahead 2/32 and yielding 2.13 percent, down from 2.15 percent at the close on Friday.

Investor buying patterns are shifting, with some demand leaving the market's long end, Lowery said. The buying had narrowed the differences among Treasuries maturities.

"Over the last couple of months, the curve has flattened relentlessly, with the 30 generally outperforming the rest of the curve," he said. "That's based on some strong demand that the market has been seeing from foreign central banks, as well as some large money managers. Buying from those sources seems to have slowed down in the past week or so."

—By Reuters