U.S. government bonds rose on Monday, sending yields to three-week lows as investors shrugged off robust factory data and instead sought a safe haven after recent attempted car bombings in the UK and an attack in Yemen.
The Institute for Supply Management's manufacturing gauge unexpectedly rose to a 14-month high, giving bonds a brief knock lower as it provided fresh evidence that the factory sector was weathering a persistent slump in housing.
However, traders said attempted car-bomb attacks in London on Friday, Saturday's attack on Glasgow's airport in Scotland, and the killing of six Spanish tourists and one Yemeni in a blast in Yemen had put a floor under the market.
Investors were also unwilling to be short of Treasuries heading into Wednesday's July 4 U.S. holiday and wary of adjusting economic views with a key jobs report due on Friday.
I don't think anyone is committing any fresh capital based on ISM, said Jason Evans, co-head of government bond trading at Deutsche Bank Securities in New York.
I think it's unlikely that the market is going to give up a lot of ground ahead of July 4. With what's going on in the UK it's going to make people anxious about playing the market from the short side.
Benchmark 10-year notes rose 3/32 in price, pushing their yields down to 5.01 percent from 5.03 percent on Friday.
Two-year notes were unchanged in price, yielding 4.87 percent. The 30-year long bond was up 3/32, yielding 5.12 percent.
The Institute for Supply Management's manufacturing index rose to 56.0 in June from 55.0 in May, surpassing forecasts for no change.
Though the unexpectedly high reading sparked a brief dip in bonds, traders bid the market back up when the sell-off failed to gather momentum.
Adding to support for bond prices, the report also delivered good news on inflation, with its prices paid component easing.
Meanwhile, continued worries about how the fallout from the crisis in the subprime mortgage market could affect economic growth acted as a brake on any sell-off.
The fact that the market did almost nothing on somewhat stronger ISM (manufacturing) numbers sparked short-covering in a quiet pre-holiday market so here we sit with some small gains, settling into a range, said John Canavan, analyst at Stone and McCarthy Research Associates.