U.S. Treasury debt prices rallied on Monday as a troubled outlook for the U.S. and global economies whetted appetite for safe-haven government debt, sending yields to their lowest in more than eight months.

A closely watched measure of U.S. manufacturing underscored the precariousness of the U.S. economic outlook after gross domestic product figures last week showed minimal growth in the first half of the year.

On the debt ceiling front, U.S. congressional leaders lined up votes for a White House-backed deal to raise the U.S. borrowing limit and avert an unprecedented debt default.

"If the debt ceiling and U.S. credit quality were the only concerns, then we might be looking at a rally in stock prices as risks declined and a flattening of the Treasury yield curve as uncertainty about the credit outlook improved," said Robert Tipp, chief investment strategist for Prudential Fixed Income with $240 billion in assets under management.

"But a tectonic shift is occurring in people's perceptions and expectations about the economy and that shift is not limited to the United States; it applies to Europe and, to some extent, China, as well," Tipp said.

"Growth has been less than markets had thought," he said.

Benchmark 10-year notes traded 13/32 higher in price to yield 2.75 percent, the lowest since mid-November and down from 2.80 percent late Friday. Recent bidding for Treasuries had benchmark notes on track for the biggest three-day dip in yield since May 2010.

With an expected increase in the debt ceiling, the U.S. Treasury Department sold $27 billion in three-month bills and $24 billion in six-month bills.

In the three-month auction, the level of bids received eclipsed those accepted by a 4.51 ratio, the highest in nearly a month, said Thomas Simons, money market economist at Jefferies & Co in New York.

Demand was less enthusiastic for the $24 billion in six-month bills the Treasury auctioned.

Simons pointed to "some modest uncertainty about the debt ceiling even though there is news of agreement at the leadership level."

"Once the votes are counted and the bill is signed into law, it is likely that cash could come back to the market and drive yields lower," he said.

Votes were expected later in the day or on Tuesday in the U.S. House of Representatives and Senate on a plan to cut at least $2.4 trillion over 10 years, form a new congressional committee to recommend a deficit-reduction package by late November, and raise the U.S. borrowing limit through 2013.

The Institute of Supply Management said on Monday its manufacturing index read 50.9 in July, barely above the 50 mark that separates expansion from contraction. For the first time since June 2009, new orders contracted.

News that European and Asian factory activity in July was the weakest since the 2009 recession underscored the gloomy economic outlook.

Thirty-year Treasury bonds traded 21/32 higher in price with their yields falling to 4.08 percent from 4.12 percent late Friday.

"If you carve out what is going on with the debt crisis and you just look at what is going on in the economy, then obviously things are not going very well -- we need to see stronger GDP growth, we need to see lower unemployment, we need to see housing values recover, and those things are only happening relatively slowly, if at all," said S.J. Guzzo, head of strategies for taxable fixed income at Raymond James in Memphis, Tennessee.

(Additional reporting by Ellen Freilich; Editing by James Dalgleish)