Prices gain as equities dip; Greek worries remain

US 10-YR
US 30-YR

U.S. government debt prices moved higher on Tuesday as stocks slipped and investors kept a cautious tone due to uncertainty over Greece's future in the euro zone.

The left-wing Syriza party, which opposes Greece's EU/IMF bailout and is leading in opinion polls ahead of an election next month, has said it wants to abandon many of the drastic spending cuts that are central to the nation's economic rehabilitation program. That uncertainty has helped U.S. bonds rally strongly this week, though thin liquidity before the New Year's holiday has exacerbated price moves.

"We're trading with equities at the moment," said Ira Jersey, an interest rate strategist at Credit Suisse in New York. But "a lot of times when you get these moves in very thin volumes they reverse once you get some liquidity," he added.

Benchmark 10-year Treasury note were last up 3/32 in price to yield 2.19 percent. The yields have fallen from a high of 2.30 percent last Wednesday, before Thursday's Christmas holiday.

Ten-year yields may back up to the 2.25 percent level next week when more traders and investors return and volumes pick up, Jersey said. Some month-end extension buying also may be helping bond strength this week, traders said.

The next major focus for the market will be the Jan. 7 release of minutes from the Federal Reserve's policy-setting meeting earlier this month. In its statement from that meeting, the Fed changed its vow to keep interest rates near zero for a "considerable time" to say that it would remain "patient."

Investors will be watching for further signs about when the Fed is likely to begin raising interest rates, as well as indications over how fast and spread out rate hikes may be once the tightening begins.

"There is a lot of talk in the market and not a lot of consensus about the pace of tightening," Jersey said. Markets also will scrutinize next Friday's U.S. employment report for December.