Bonds Get Boost as Fannie, Freddie Lead Stocks Lower

U.S. Treasury debt prices rose for a third straight session Monday, taking benchmark yields to one-month lows as weaker stocks ignited safe-haven bidding for lower-risk government debt.

Falling energy prices also gave bonds a boost by easing expectations the Federal Reserve will eventually have to raise interest rates to fight inflation.

"You have stocks selling off and concerns continuing about the health of financial companies, and this stokes the flight-to-quality bid for Treasurys," said David Coard, head of fixed income sales and trading at Williams Capital Group in New York.

Benchmark 10-year Treasurys were trading 8/32 higher in price for a yield of 3.82 percent -- the lowest since July 16 -- from 3.85 percent late Friday. Two-year notes were 2/32 higher for a yield of 2.36 percent from 2.40 percent.

The only data scheduled for release Monday was the National Association of Home Builders' gauge of homebuilder optimism for August.

The median of forecasts from economists polled by Reuters is for the NAHB index to remain unchanged from the record low of 16 in July.

The highlight event this week is expected to be Friday, when Federal Reserve Chairman Ben Bernanke speaks on financial stability as part of a symposium in Jackson Hole, Wyo.

Stocks were hit Monday by worries over the potential for more losses from the mortgage crisis. Shares of U.S. home finance giants Fannie Mae and Freddie Mac both were trading over 10 percent lower in price after Barron's reported that the U.S. Treasury is increasingly likely to recapitalize the two companies, a move that would dilute the value of stock holdings.

Five-year Treasury notes were trading 4/32 higher in price for a yield of 3.08 percent from 3.11 percent late Friday, while 30-year bonds were 18/32 higher for a yield of 4.44 percent from 4.47 percent.