NEW YORK U.S. Treasuries prices rallied on Monday as stock market losses hurt investors' appetite for risk, refueling the bid for safe-haven U.S. government debt.
The bankruptcy of futures broker MF Global Holdings MF.N added to the nervousness.
"It's the move down in stocks and also one of those 'Who's next?' trades prompted by the MF Global bankruptcy filing. But it's also because, after a phenomenal month, investors can't help but have second thoughts on the last day of the month, particularly given what little transpired last week in Europe," said Cary Leahey, managing director and senior economist at Decision Economics in New York.
MF Global, also a primary dealer run by former Goldman Sachs chief Jon Corzine, filed for Chapter 11 bankruptcy after a tentative deal with a buyer fell through. The New York Federal Reserve suspended the firm from conducting new business with the central bank.
The appetite for safe-haven U.S. debt was whetted by more than the troubles of one firm.
"Euphoria about the euro zone package (to address the continent's debt crisis) has been tempered as the harsh reality of the detail begins to bite," said Andrew Milligan, head of global strategy at Standard Life Investments in Edinburgh.
European policymakers "made stabs in all the right directions, dealing with Greece, bank solvency and the larger question of contagion," said Leahey. "But a lot of detail remains to be filled in and the time frame for recapitalizing European banks is surprisingly slow."
Compounding the implementation issues "is the basic problem of how to achieve the stronger growth needed to service debt when everybody is tightening their belts," Leahey said.
France, for instance, has said a growth forecast of 1.75 percent for next year will have to be scaled back, which will make revisions to the 2012 budget necessary in order not to breach deficit-cutting targets.
"In the past when small economies have done what we'd all love Greece to do, they did it against a much stronger global and European economic backdrop," Leahey said.
Soaring Italian and Spanish bond yields prompted the European Central Bank to buy Italian and Spanish debt.
In contrast, safe-haven U.S. debt rallied.
Benchmark 10-year Treasuries rose 1-3/32, their yields falling to 2.19 percent from 2.32 percent on Friday.
Thirty-year Treasury bonds rose 3-2/32, their yields falling to 3.22 percent from 3.37 percent.
The safety bid that drove U.S. Treasuries prices higher also lifted safe-haven German government bonds as peripheral bonds came under pressure.
Japan sold the yen for the second time in less than three months after it hit another record high against the dollar, saying it intervened to counter speculative moves that were hurting the economy.
In Vienna, Chinese President Hu Jintao said Europe had the capacity to overcome its economic problems, but offered no indication as to whether Beijing could play a major role in helping solve the euro zone's debt crisis.
A two-day Federal Reserve policy meeting begins on Tuesday, with Fed officials worried about the U.S. economy's health and looking at ways to offer more monetary stimulus -- including helping the distressed housing market.
(Additional reporting by Chris Reese; Editing by Kenneth Barry)