Interest rates extend drop on fears of slowdown

NEW YORK -- Interest rates fell to new lows for the year Monday in the bond market after concerns grew that a global rebound is stalling.

The yield on the benchmark 10-year Treasury note maturing in May 2020 fell to 3.03 percent from 3.11 percent Friday. That was the lowest yield since April 2009. Its price rose 78.125 cents per $100 in face value to $104.03125.

The drop in rates is welcome news for borrowers because the 10-year yield is tied to interest rates on mortgages and other consumer loans.

The increased demand for safety holdings came after the government said that consumers put more money away than they saved last month. That can be good for individuals but could slow the rebound if consumers continue to be cautious. The Commerce Department said consumer spending rose 0.2 percent last month, more than the 0.1 percent growth forecast by economists polled by Thomson Reuters. Personal income rose 0.4 percent.

Traders have been on edge for months that everything from a loan default in weak European countries like Greece to fatigue over government spending elsewhere could threaten the global rebound. At a weekend meeting in Toronto, leaders from the G20 nations agreed that industrialized countries would cut deficits by half by 2013. They also pledged not to take away the support of government spending too quickly, however.

Worries about a so-called double dip into recession have been dogging investors since April. The stock market gave up a moderate gain to end lower Monday in light volume. The rise in demand for Treasurys signals that investors feel most comfortable in U.S. government debt.

Howard Simons, strategist with Bianco Research in Chicago, said investors are pumping money into Treasurys in part because other assets like stocks don't look like they will keep going up.

"It's signaling a heightened degree of financial stress and almost nothing else is," Simons said of the demand for Treasurys. "Maybe we get a slowdown in growth but nothing is pointing to a double-dip."

Simons also noted that increased demand from banks because of midyear buying is likely also adding modestly to demand for Treasurys.

In other trading, the yield on the 30-year Treasury bond maturing in May 2040 fell to 4 percent from 4.06 percent. Its price rose $1.125 to $106.40625.

The yield on the two-year note that matures in May 2012 fell to 0.63 percent from 0.66 percent. The price rose 6.25 cents to $99.96875.

The yield on the three-month Treasury bill maturing on Sept. 16 rose to 0.13 percent from 0.12 percent. Its discount rate was 0.14 percent.