Treasurys gained slightly Monday, pushing yields lower, as stocks extended losses ahead of the unofficial beginning of earnings season.
Prices fell earlier as traders noted fixed-income investors turning their attention away from government debt in favor of corporate and mortgage-backed securities.
Ten-year note yields ) fell 3 basis points to 2.36%.
A basis point is 0.01%. Bond prices move inversely to their yields.
Economic data due this week are expected to show that consumers pulled back for a sixth month in December and that prices eased. See Economic Preview.
"The overall tone of the data will highlight weak personal consumption and disinflationary impulses," said T.J. Marta, fixed-income strategist at RBC Capital Markets.
No major data are scheduled for release on Monday. Atlanta Fed President Dennis Lockhart will speak about the economy at 1 p.m. Eastern time.
On Friday, the Labor Department's monthly unemployment report indicated the nation's jobs market is worse than it seemed.
Dow Industrial Average component Alcoa Inc. ) releases its fourth-quarter results after the market closes, starting what is expected to be an especially dreary earnings season. See stocks report.
Earlier, Andrew Brenner, co-head of structured products and emerging markets at MF Global noted "the new money flows are going into corporate [bonds] and mortgages."
Several portfolio managers have said that yields on corporate bonds are factoring in much higher defaults than what they say will actually occur, even in a recession. More interest in the securities brings down the yields that companies need to offer to draw interest.
Indeed, the yield that companies have to pay for their debt above Treasurys has shrunk to the smallest since October. An index of corporate debt compiled by Merrill Lynch shows companies are paying 5.62 percentage points more than Treasurys, down from as high as 6.56 points in early December.
Mortgage bonds are gaining greater investor interest as well, as the Federal Reserve began buying mortgage-backed securities last week in an effort to stabilize the housing market. The U.S. central bank bought about $10 billion in mortgage bonds, the start of about $500 billion in purchases, it said. See related story.
According to Merrill, the gap between what mortgage-backed securities pay in the way of interest and the yield on Treasurys fell to 1.17 percentage points on Friday, near the lowest since September, when the global financial crisis deepened.
