Treasurys Bounce Back After Stocks Head Lower

U.S. Treasurys rallied Monday afternoon, erasing early losses as a stock downturn revived the bid for safe-haven U.S. government debt.

All three major U.S. stock indexes turned lower as losses in financial and energy issues weighed on the market. Fannie Mae was down more than 16 percent.

Responding, Treasurys prices rose while their yields, which move inversely to prices, eased.

Two-year Treasury notes, taking the stock market's fresh round of weakness as a further sign that the Federal Reserve will not soon raise interest rates, jumped 8/32, its yield easing dramatically to 2.41 percent versus 2.48 percent earlier Monday.

Investors returning to the Treasury market after a three-day U.S. market holiday also took a cue from a climb in European bonds, which were boosted as dealers trimmed expectations that the European Central Bank will raise rates aggressively after a 25-basis-point hike last week.