Treasury yields fall to 2-month lows

NEW YORK (MarketWatch) � Treasury prices rose on Monday, pushing 10-year yields down to their lowest in about seven weeks, as worries about potential changes in French and Dutch political leaders added to weakening economic data in the region, boosting the appeal of the relative safety of U.S. bonds.

Yields on 10-year notes 10_YEAR �, which move inversely to prices, fell 3 basis points to 1.94%, their lowest level since early March. A basis point is one one-hundredth of a percentage point.

Five-year note yields 5_YEAR �slipped 3 basis points to 0.83%, near the lowest in about seven weeks.

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The yield on 30-year notes 30_YEAR �declined 4 basis points to 3.09%, its lowest level since early March.

�We are sure to be hanging off the cliff as related to updated euro-related news flow,� said George Goncalves, head of U.S. rates strategy at Nomura Securities. �Things need to get uglier to push us under 1.90%� on 10-year yields.

The euro-zone preliminary composite purchasing managers� index, or PMI, unexpectedly fell to a five-month low.

That followed first-round presidential elections in France where French President Nicolas Sarkozy came in second behind Socialist challenger Fran�ois Hollande. A surprise third-place showing by anti-euro, anti-immigration National Front leader Marine Le Pen also underlines growing anger over austerity and the ongoing euro-zone crisis, strategists said.

The Dutch government, led by Prime Minister Mark Rutte, also resigned after long-running budget talks collapsed over the weekend, which is likely to force new elections . Read about French, Dutch politics.

�The uncertainties of Europe�s political landscape combined with weaker PMI data out of the region have aided the flight-to-quality underpinnings for the market,� said David Ader and Ian Lyngen, bond strategists at CRT Capital Group.

Last week, 10- and 5-year yields fell for a fifth straight week, coming off their highest levels since October, as U.S. economic data softened and worries about European debt � and the effect of the turmoil on the region�s growth outlook � resurfaced.

Fed meeting, news conference

Also in focus, the Federal Reserve�s Federal Open Market Committee will begin a two-day policy meeting on Tuesday. Fed Chairman Ben Bernanke will hold a news conference after the meeting ends Wednesday.

/quotes/zigman/4868283/delayed 10_YEAR 1.67, -0.02, -1.24% Ten-year yields fall further Yields on benchmark 10-year notes fall for a fifth week, off their highest since October.

Many analysts don�t expect any major changes to the FOMC�s statement or policy measures. Officials are expected to continue to forecast low interest rates until 2014 and will end the Fed�s current bond-purchase program, known as Operation Twist, in June.

�Investors will be looking for any clues as to whether or not the committee is leaning toward additional long-term asset purchases,� said Steven Ricchiuto, chief economist at Mizuho Securities USA, one of the 21 primary government-security dealers that trades directly with the Fed.

�Further purchases will be undertaken later this year. It is unlikely that the Committee will tip its hand this far in advance of �Operation Twist� terminating,� he said.

After this meeting, the next Fed gathering is scheduled for June 19 and 20.

In his news conference, Bernanke will need to walk a fine line, Ricchiuto said.

Bernanke �needs to let investors know that further long-term asset purchases are still on the table. However, that will be contingent on additional evidence that the labor market is starting to stall again and inflation remains benign.�