NEW YORK (CNN/Money) -
U.S. Treasury prices rose Monday as oil continued its climb and speculation widened that the Federal Reserve may acknowledge a weaker economy in Tuesday's policy statement.
The benchmark 10-year note added 14/32 of a point to 101-18/32 to yield 4.06 percent, down from 4.11 percent late Friday, and the 30-year bond climbed 22/32 to 107-17/32 to yield 4.87 percent, down from 4.91 percent late last week. Bond prices and yields move in opposite directions.
The two-year note gained 4/32 to 99-29/32 to yield 2.43 percent, and the five-year note rose 10/32 to 100-16/32 to yield 3.27 percent.
The central bank is widely expected toraise interest rates another quarter percentage point Tuesday, but bond bulls speculate policy-makers could also soften their optimism on the economy and note an easing of inflation pressures.
That would set the tone for a more moderate pace of monetary tightening, perhaps hinting at a pause in interest-rate hikes down the line.
"The only uncertainty regarding the (Fed meeting) is in respect to the wording of the accompanying policy statement," said Michael Cartine, senior Treasury analyst at Thomson IFR.
"That will either suggest a switch to a more data-dependent orientation from a 1.75 percent or 2.00 percent funds rate or keep the Fed on track to raise rates at a measured pace."
Over the weekend, Russia's Yukos energy company said it had halted the shipment of some exports to China, the first sign that the major exporter might curtail exports amid its tax battle with the Russian government.
China's steady appetite for raw materials as its economy takes off may lead the country to look elsewhere for oil, further tightening the global oil market.
Rising oil prices often limit discretionary consumer spending, a vital component of overall economic activity.
A slew of corporate profit warnings also pointed to a sell-off on the equity markets Monday, which could benefit bonds.
Monday's lone piece of economic data, the National Association of Home Builders monthly index for September, fell to 68 from 71 in August.
All three subindices measured by NAHB -- current activity, expectations and foot traffic -- were lower in September.
The recent drop in mortgage rates puts them below year-ago levels. Dealers foresee another round of mortgage refinancing which, with the typical cash-outs, could give sluggish consumer spending a boost in coming months.
In the currency market, the dollar rose against the euro and the yen. The euro bought $1.2168, down from $1.2194 late Friday and the dollar purchased ¥109.89, up from ¥109.58 late last week.
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