US Treasurys rise amid rate hike selloff fears

U.S. Treasurys rose on Monday as yields tracked lower with euro zone interest rates being pressured by the launch of the European Central Bank's 1.1 trillion euro bond-buying program.

Price gains were strongest in long U.S. maturities, where differences between America's relatively high interest rates and European rates have the most effect on buying.

The 30-year Treasury was up as much as 1 full point in price and yielding 2.79 percent in late New York trade, after closing on Friday with a yield of 2.839 percent.

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Long-dated, high-quality government debt is increasingly scarce, partly because of Federal Reserve purchases meant to stimulate growth and U.S. regulations requiring banks to increase holdings of Treasuries, according to Guy Haselmann, head of U.S. interest rate strategy at Bank of Nova Scotia in New York.

US 10-YR
US 30-YR

"The ECB program is just going to make that shortage greater," Haselmann said.

Euro zone government bond yields mostly fell on Monday, which was the first day of the ECB's sovereign debt purchase program. German 10-year bond yields fell 4 basis points to 0.36 percent as Dutch and French yields declined by 7 bps, according to Thomson Reuters data.

Benchmark 10-year U.S. Treasury notes yields were last at 2.19 percent, compared with a yield of 2.24 percent late Friday.

Longer-dated Treasurys were also bouncing back from weakness last week, when a flurry of big corporate bond sales hurt prices, as did a robust U.S. jobs report on Friday that drove speculation a Fed rate hike was near, Haselmann said.

Treasurys have been slumping. In five weeks, the market's massive rally in January has been nearly wiped out. Treasurys were -0.11 percent for the year through Friday.

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Price gains were smaller among shorter-term Treasurys, with the 2-year note most sensitive to Fed policy changes adding only 1/32 to yield 0.70 percent.

"There is flattening pressure in Europe that is spilling over to here," Haselmann said. "The negative rates in the very front end of Europe means the banks will probably stay away from there. They will want to own out the curve, where there is positive yield."

The yield spread between five-year notes and 30-year bonds was last at 113.7, versus 114.50 late Friday.