Treasury prices rose Monday and yields dipped to their lowest levels in months because of worries about a Greek default and the Federal Reserve's dim economic outlook.
The spike in demand for ultra-safe investments pushed the yield on the five-year Treasury note to a record low. The yield on the 10-year note dropped below its lowest closing level in nearly four months and stayed very low.
Greece is negotiating with banks and hedge funds that own its government bonds, aiming to wipe out some of its crushing debt. If the talks fail, Greece will be denied its next round of bailout cash and will probably default.
Greece relies on bailout loans from the International Monetary Fund, European Central Bank and European Commission.
Borrowing costs for some European nations rose as investors sold their bonds, fearing that the Greek crisis will cause a wave of defaults. As Portuguese and Italian bond yields rose, money flowed into ultra-safe Treasurys and German bunds.
A bond's yield rises as demand for it falls. That means traders are demanding a higher rate of return in exchange for holding a less desirable, higher-risk investment.
The price of the 10-year Treasury note rose 34 cents for every $100 invested as of 4 p.m. Eastern time, pushing its yield down to 1.85 percent from 1.89 percent late Friday.
The 10-year yield hit a low during the trading day of 1.8104 percent, barely above its recent trading-day low of 1.8039, reached Dec. 19. It has not settled below Monday's low since Oct. 3, when it closed at 1.76 percent.
Treasurys have been rising since the Fed said last week that it will keep interest rates low through 2014, signaling low expectations for growth and inflation.
Low inflation makes Treasurys more attractive by preserving the buying power of traders' modest, fixed returns. Economic uncertainty typically draws cash into low-risk bets as traders cut their holdings of riskier investments.
The Fed's statement sparked speculation that the central bank will engage in another round of bond-buying if the economy appears to stumble. Traders tend to bid up bonds before the Fed enters the market. That way, when demand lifts prices further, traders can sell and reap bigger profits.
That speculation had the strongest effect on shorter-length Treasurys. The yield on the five-year Treasury note hit a record low of 0.71 percent early Monday. It finished Monday at 0.74 percent, from 0.75 percent late Friday.
The price of the 30-year Treasury bond rose $1.06 per $100 invested, pushing its yield down to 3.01 percent from 3.06 percent late Friday.
The yield on the two-year Treasury note was unchanged at 0.22 percent. In the market for short-term credit, the yield on the three-month Treasury bill stayed at 0.05 percent.
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