U.S. Treasury prices ended Monday roughly flat after spiking overnight on fears about the impact of elections in Greece and France.
Greek voters on Sunday rejected mainstream parties that have imposed tough spending cuts demanded by the country's lenders. Greece relies on bailouts from the International Monetary Fund, European Central Bank and European Union to stay afloat.
Fed up with austerity programs that might be deepening Greece's recession, voters supported a hodgepodge of splinter parties. It was unclear whether pro-austerity parties have enough support to form a governing coalition and continue meeting the lenders' bailout requirements. That could lead the lenders to withdraw future bailout funds.
"This fracturing of Greek society has brought forward again the prospect of further European turmoil," said Andrew Wilkinson, chief economic strategist with Miller Tabak & Co., a brokerage in New York.
Uncertain about Europe's path forward, traders initially sold higher-risk assets such as stocks and bonds issued by European nations. They bought up ultra-safe Treasurys, pushing the yield on the 10-year note as low as 1.83 early Monday morning. The yield hasn't finished that low since early February.
Also Sunday, French voters threw out President Nicolas Sarkozy, who has helped lead the crisis response with German Chancellor Angela Merkel. Francois Hollande, the Socialist candidate who beat Sarkozy, has condemned austerity but appears committed to reducing France's debt in the coming years.
Wilkinson said the Greek election was affecting markets more strongly than the French outcome. After the election results were reported, Greece's borrowing costs spiked compared to the yields on German bunds, he said. By comparison, France's borrowing costs fell sharply compared to bunds after Hollande's victory.
To understand a bond's value relative to the broader market, analysts typically track the spreads between the bond's interest rate and the rate on ultra-safe, low-yielding benchmarks such as German bunds and U.S. Treasurys.
By the start of trading in New York, most European stocks had recovered their overnight losses and Treasury prices had fallen back near Friday's levels. The price of the 10-year Treasury note was unchanged from late Friday, leaving its yield at 1.88 percent as of 3 p.m. EDT Monday.
Bond yields rebounded after investors realized that stocks were not due for the kind of plunge that many had feared, Wilkinson said.
Treasury prices remain unusually high because of rising fears about the progress of the U.S. economic recovery. The yield on the 10-year Treasury note fell to 1.88 percent late Friday from 1.92 percent late Thursday.
The culprit was a surprisingly weak report on U.S. hiring in April. It was the second straight month of disappointing job growth, raising fears that the economic recovery has slowed down after signs of stronger growth this winter.
As they wait for clarity about how the recent elections will affect Europe, traders remain focused on worrying signs about the economy, Wilkinson said.
"At this point, low bond yields are driven by weakening U.S. growth," he said.
In other trading, the price of the 30-year Treasury bond edged up 9.4 cents, leaving its yield unchanged at 3.07 percent.
The yield on the two-year Treasury note was unchanged at 0.26 percent. The yield on the three-month Treasury bill rose to 0.08 percent from 0.07 percent late Friday.
Daniel Wagner can be reached at www.twitter.com/wagnerreports.