Treasuries saw considerable strength during trading on Monday, as lingering concerns about the financial situation in Europe increased the appeal of U.S. government-backed bonds.
Bond prices moved notably higher in early trading and remained firmly positive throughout the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 6.4 basis points to 1.608 percent.
The strength among treasuries came as traders kept a close eye on the latest developments in Europe, where Spain formally asked for a bailout to shore up its ailing banking sector.
Europe is likely to remain in focus throughout the week, as European leaders are due to hold a summit to discuss the ongoing debt crisis on Thursday and Friday.
Peter Boockvar, managing director at Miller Tabak, said, "With Germany just not giving in to the requests for largesse that the rest of Europe wants them to disperse in the form of socializing debt obligations in the Euro region, nothing of substance will come out of the Thurs/Fri EU summit and markets today are realizing that."
"Without German allowance money, pressure will then build on the ECB to print money to the obvious dismay of the Germans," he added.
Meanwhile, traders largely shrugged off a report from the Commerce Department showing a bigger than expected increase in U.S. new home sales.
The report showed sales of new single-family homes at a seasonally adjusted annual rate of 369,000 in May, a 7.6 percent increase from the revised April rate of 343,000. Economists had expected new home sales to climb to 350,000.
With the much bigger than expected increase, new home sales in May came in at their highest level since April of 2010.
Any further developments in Europe are likely to take center stage on Tuesday, although trading could also be impacted by the release of reports on home prices and consumer confidence.
Bond traders are also likely to keep an eye on the results of the Treasury Department's auction of $35 billion worth of two-year notes.
by RTT Staff Writer
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