The U.S. Treasurys market rallied on Monday, with yields falling to one-week lows, as a breakdown in talks between Greece and its creditors stoked bets Athens would default on its debt, an outcome some traders fear may impact markets worldwide.
Still, hopes remained that the debt-laden euro zone nation, European officials and international lenders would hammer out at least a temporary deal even as Greece likely misses a Tuesday deadline to repay $1.77 billion to the International Monetary Fund.
S&P downgraded the country's long-term credit rating from CCC to CCC- with a negative outlook. The ratings agency said it saw a 50 percent probability that Greece would exit the euro zone.
The bond market stabilized on mild profit-taking after earlier gains, although analysts anticipated volatile trading ahead of the end of the second quarter.
"The coast is not clear ahead of quarter-end," said George Goncalves, head of U.S. interest rates strategy at Nomura Securities International in New York. "There is still a belief there's a solution (for Greece) even though I think it's misplaced."
Amid worries Greece might eventually exit the euro zone, the Greek government shut banks and imposed capital controls, and Prime Minister Alexis Tsipras called for a referendum on Sunday on austerity cuts in the aid package proposed by creditors.
In addition to the Greece quagmire, investors are looking toward a batch of top-tier economic data, including the government's June payrolls report. The latter may reinforce ideas that the U.S. Federal Reserve might raise interest rates as early as September, the first such hike in about ten years.
"If you get another big jobs number, it would put a Fed rate hike in play," said Bret Barker, portfolio manager at the TCW Group in Los Angeles.
New York Federal Reserve President William Dudley told the Financial Times that a September rate increase is "very much in play" if the U.S. economy improves further.
Traders brushed off data that showed domestic pending home sales at a nine-year high. U.S. financial markets will close on Friday in observance of the Fourth of July holiday.
Benchmark 10-year Treasurys notes were last up more than a 1 point in price for a yield of 2.328 percent, down 14 basis points from late on Friday. The 10-yield yield traded in a range of 2.292 percent to 2.409 percent.
The 30-year bond was up more than 2 points in price for a yield of 3.102 percent, down 14 basis points from Friday. Treasurys lagged than their German counterparts. The 10-year U.S. yield premium over 10-year Bund yield grew to 1.57 percent from 1.56 percent.