NEW YORK—Month-end buyers spurred Treasury prices higher, helping the market recover from overnight losses and end January with a bang on five consecutive positive sessions.
This winning streak is the longest and sharpest set of gains since mid-December, when the U.S. government conducted a slate of stellar debt auctions amid elevated euro-zone jitters. Five-year yields have been dragged through a string of record lows over the past four sessions, setting yet another all-time low Tuesday at 0.704%.
The broader market mood was actually upbeat before U.S. investors stepped in, with Treasury prices lower in Asian and European trading hours.
Global investors had regained some confidence about the progress being made in Greece after Prime Minister Lucas Papademos said a debt write-down deal between the nation and its private lenders looks to be on the horizon and that an agreement for another round of bailout cash should be struck by week's end.
Meanwhile, Germany's unemployment rate fell to a new euro-era low, stirring some investor cheer that at least the region's largest economy is holding up amid the Continent's debt turmoil.
While these encouraging reports put Treasurys under pressure, U.S. investors arrived with purchase orders to settle remaining month-end needs and guard against Tuesday morning's batch of somewhat disappointing U.S. economic data.
"This market seems like it'll take any excuse to rally," said Paul Montaquila, fixed-income investment officer at Bank of the West, pointing to the unexpected drop in U.S. consumer confidence as the day's catalyst. "The rally seems to be overdone."
By late-afternoon trading, five-year notes rose 3/32 in price to yield 0.711%, at one point hitting a new all-time low of 0.704% earlier in the session. Benchmark 10-year notes gained 10/32 to yield 1.802%, and 30-year bonds climbed 26/32 to yield 2.943%.
For the month, five-year yields fell more than 0.12 percentage point, while 10-year yields sank nearly 0.08 percentage point. Based on the Barclays Capital U.S. Treasury index, the market has handed investors a 0.23% return on the month as of Monday, Jan. 30.
Along with the dip in January's consumer confidence, the S&P Case-Shiller index showed U.S. home prices dropping yet again in November, while purchasing managers in Chicago saw the country's economic growth slowing a bit this month.
Rabobank fixed-income strategist Richard McGuire also warned that the bigger picture regarding Europe remains unchanged despite hints of optimism Tuesday. In contrast to Germany's individual labor market, the euro zone showed the overall region's unemployment rate inching to a euro-era high of 10.4%.
The rally in Treasurys over the past several days has been particularly strong for medium-term notes. The Federal Reserve's longer-than-expected pledge last week to keep its policy rate near zero through at least late-2014 has paved the way for investors to pile into these U.S. government debt maturities. By clearly stating its intentions to keep the federal funds rate near zero, U.S. monetary authorities have reduced so-called interest-rate risk for bondholders for a longer period of time.
With two-year yields stuck around their current 0.219%, the Fed's easy-policy extension has pushed investors out to relatively longer-dated maturities, ironing out the so-called Treasury yield curve. Bond prices move inversely to yields.
"This is the backdrop we're dealing with," said Bank of the West's Mr. Montaquila. "The policy just makes the landscape so, so clear. For a lot of the small to mid-tier institutions managing cash, reinventing the wheel means simply going out on the curve."
Indeed, since the Fed decision Wednesday, the curve has pivoted lower. The gap between two- and seven-year notes has compressed to 1.02 percentage points Tuesday from 1.24 percentage points before the Fed's announcement.
While there will be days of fear-driven rallies and hope-inspired selloffs, analysts suspect the volatility in Treasurys spanning between two to seven years is likely to die down in the coming months because of this prolonged era of easy monetary policy.