NEW YORK (MarketWatch) — Treasury prices climbed on Monday, extending gains from last week as the bond market refined its expectations of an accommodative monetary policy under President Obama's nominee to take over the Federal Reserve.
Janet Yellen, currently the vice chairwoman of the Fed, appeared before the Senate Banking Committee last week as she sought confirmation to lead the central bank. After she defended the Fed's $85 billion in monthly bond buying, the market began to expect a later time-frame for scaling back the pace of purchases.
Bloomberg 
Enlarge Image Charles Plosser, president and chief executive officer of the Federal Reserve Bank of Philadelphia, speaks Monday The benchmark 10-year note (10_YEAR) yield, which moves inversely to price, fell 3.5 basis points to 2.668%, following a drop of roughly 3.5 basis points last week.
The 30-year bond (30_YEAR) yield fell 4 basis points to 3.757%, while the 5-year note (5_YEAR) yield fell 4 basis points to 1.312%.
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"This is a continuation of what Yellen was saying last week," said Matt Duch, portfolio manager at Calvert Investments. "She came out and sounded a lot like Chairman [Ben] Bernanke, saying the data is not good enough yet."
Alongside the testimony from Yellen, the market has been bolstered by suggestions that the Fed could lower the unemployment rate threshold that could trigger a hike to the central bank's policy rate. Dropping the threshold as part of its so-called forward guidance would imply that short-term interest rates would stay lower for longer.
The market is becoming more comfortable with separating the Fed's policy tools and recognizing that the so-called tapering of bond purchases does not equate to hiking short-term interest rates, according to Gene Tannuzzo, senior portfolio manager at Columbia Management.
"Interest rates are near fair value here for the time being," he said, adding that the long end of the yield curve has built in a healthy amount of term premium while still maintaining expectations that the Fed's policy rate will stay low.
The Fed has said that changes to monetary policy depend on economic indicators, and data skewed to the negative side on Monday. The National Association of Home Builders/Wells Fargo housing-market index, a gauge of home-builder confidence, had an unchanged reading at 54 in October. Though a reading above 50 indicates general optimism, Wall Street economists had forecast a reading of 55.
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A number of Fed officials spoke Monday. New York Fed President William Dudley said in a speech at Queens College that he is becoming more optimistic about the pace of the U.S. economic recovery. "I believe a good case can be made that the pace of growth will pick up some in 2014 and then somewhat more in 2015," Dudley said.
Philadelphia Fed President Charles Plosser said it's time to end the Fed's asset-purchase program.
Federal Reserve Bank of Boston President Eric Rosengren spoke about how international banks that have large broker-dealer businesses pose a risk to financial stability if they don't hold capital as a buffer against risk, according to news reports.
The Treasury Department released international capital data on Monday, which showed that net foreign purchases of long-term U.S. securities totaled $25.5 billion in September, a rebound from the previous month.
Data on tap later this week include retail sales, consumer prices, and existing home sales, all due out Wednesday. The Federal Open Market Committee will also release the minutes from its October meeting on Wednesday.
The Treasurys Department will sell $13 billion of 10-year Treasury inflation-protected securities on Thursday at a time when many investors continue to shun the asset class.
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