Worries over Europe's debt troubles pushed U.S. government bond prices higher Monday after Moody's warned that credit ratings of European Union countries could be cut in the coming months.
The price of the 10-year Treasury note rose 43.7 cents for every $100 invested. The yield dropped to 2.02 percent from 2.07 percent late Friday.
The rating agency Moody's said an agreement reached last Friday at a summit of European leaders lacked measures to shore up credit markets over the short term. The pact is aimed at enforcing tighter budget controls on E.U. member countries. But without steps to calm bond markets, "the system remains prone to further shocks," Moody's said.
Stocks markets in the U.S. and Europe fell sharply. Traders sold government bonds from Italy, Spain and other countries at the center of the region's ongoing debt crisis and shifted them into U.S. Treasurys, considered one of the few safe places for traders to park their cash.
That strong demand helped the Treasury auction $32 billion in 3-year notes Monday afternoon. Banks and other large bond buyers placed bids for 3.62 times the amount offered, the strongest bidding at an auction of 3-year notes since Nov. 1990. The notes were sold to yield 0.35 percent.
In other Treasury trading, the 30-year Treasury bond rose $1.03 per $100, and its yield fell to 3.06 percent from 3.11 percent. The two-year Treasury's yield remained unchanged at 0.23 percent.
In the market for short-term U.S. government debt, the three-month bill paid a 0.01 percent yield.