NEW YORK (MarketWatch) -- Treasury prices closed higher Monday, sending the yield on the benchmark 10-year note to its lowest level in seven weeks, ahead of reports expected to show signs of weakness in the U.S. economy and as traders eyed keenly the latest developments in Iran and the subprime market.
A raft of economic data will be packed into the middle three days of the week. Highlights include the Institute for Supply Management index, orders for durable goods, housing, a second reading of fourth-quarter gross domestic product, and the core personal consumption expenditure index -- an inflation gauge closely watched by Federal Reserve officials.
"Treasurys are on track to post gains as the market is anticipating the fourth-quarter GDP report will post a large downward revision, as the housing slump continues to weigh on growth and the growing trade deficit acts as a drag on the economy," said Charmaine Buskas, economist at Moody's Economy.com.
The benchmark 10-year Treasury bond closed up 11/32 at 99 31/32. Its yield
($TNX : CBOE 10-Year Treasury Yield Index ![]()
$TNX46.31, -0.47, -1.0%) , which moves inversely to prices, dropped to 4.631%, down from 4.680% at Friday's close. In intraday trading, the benchmark yield fell to 4.623%, the lowest level since Jan. 5.
The 30-year Treasury bond rallied 23/32 to 100 9/32 with a yield
($TYX : CBOE 30-Year Treasury Yield Index ![]()
$TYX47.33, -0.49, -1.0%) of 4.733%.
The bond market also found some support from news that Alan Greenspan, the former Federal Reserve Chairman, warned that the U.S. economy might slip into recession this year, according to press reports. Speaking in Hong Kong, Greenspan was quoted as saying that there were signs that the present U.S. business cycle is at late stages, with the possibility that the economy could slip into a recession late this year or in 2008.
The odds of an interest-rate cut during the first half of 2007 rose to their highest level seen in six weeks Monday, the federal funds futures market showed. Traders were pricing in a 22% chance that the Fed will lower its target for overnight interest rates to 5% from 5.25% by June. The odds of rate cut by March now stand at 4%.
"Whenever fear enters into the security markets, justified or not, investors flock to the safest investments. In this case, Treasurys have been the recipient of this fear," Giddis said.
Wanfeng Zhou is a markets reporter in New York.