Treasury debt prices rose, bolstered by safe-haven buying from investors' persistent worries about the global banking system.
The need for funding by cash-strapped banks put upward pressure on short-term borrowing costs as the quarter drew to a close.
Short-term interbank lending rates on both sides of the Atlantic climbed on financial institutions' pressing search for cash. US federal funds traded at 3.0 percent, a wide 75 basis points above the target rate set by the Federal Reserve.
Overnight dollar-denominated Libor, or London interbank offered rates, jumped to 3.181 percent at the British Bankers Association's latest daily fixing, from 2.866 percent on Friday.
The Federal Reserve and some European central banks have stepped up hefty liquidity injections into the banking system since December, but these initiatives are only partially alleviating strains, analysts said.
"The Fed measures are lending some stabilization to the market, but it doesn't seem like the financing aspect for banks is getting any better," said Sean Murphy, bond trader with RBC Capital Markets in New York.
As the first quarter drew to a close, Treasurys were on track to post a total return of about 4.3 percent, according to the JP Morgan U.S. government bond index.
Many economists believe the U.S. economy contracted during the first quarter.
If Treasurys hold their price gains for the month so far, they will log their strongest quarter in 5-1/2 years, since the third quarter of 2002, which was the final quarter of a bear market for stocks.
Bond analysts awaited an appearance by Federal Reserve Chairman Ben Bernanke scheduled Wednesday for his latest views on the impact of the credit crisis on an already wobbly economy. The monthly non-farm payrolls report due Friday is expected to show jobs falling for the third straight month, putting an exclamation mark on the recent raft of weak economic reports.
"Maybe Treasurys are the ultimate security for people around the world," with global equities under pressure on concerns that weakness in the economy will have a broader worldwide impact than previously thought," said Doug Roberts, chief investment strategist with Channel Capital Research in Shrewsbury, N.J.
However, stabilization of the dollar remains an important proviso for how investors view Treasurys, Roberts added. And for the dollar to stop falling, the price of crude oil must stop rising, he said.
On Monday, the euro traded just above $1.59, not far below record highs against the dollar, while US crude oil futures rose above $106 per barrel.
Among economic reports on Monday, Treasury debt prices pared gains on Monday after a stronger-than-expected reading of business activity. The Chicago Purchasing Management indexrose to 48.2 in March, above economists' median forecast of 46.0. But the index remained below 50, meaning the area's economy is contracting. Earlier, a New York City business conditions index was reported to have risen slightly in March, but Treasurys held their gains.
The Chicago PMI data was better than expected, said Dan Bernzweig, portfolio manager with Bank Leumi USA in New York.
However, "really everyone will be looking at nonfarm payrolls on Friday," he said.
The benchmark 10-year Treasury note's price, which moves inversely to its yield, traded up 7/32 for a yield of 3.41 percent, versus 3.44 percent late Friday.
The 2-year Treasury note's price was up 2/32 for a yield of 1.61 percent, versus 1.65 percent late Friday.
In Europe, banks were broadly weaker, with UBS losing 2.6 percent on fears of more write-downs. Santander, Standard Chartered and Societe Generale all fell more than 2.5 percent.
UBS shares fell after Merrill Lynch said it expected the Swiss lender to make a further $11 billion of first-quarter write-downs, resulting in a loss of 8.2 billion Swiss francs ($8.22 billion) in the first three months.