NEW YORK (MarketWatch) — Treasury prices rose Monday, pushing 10-year yields back below 2%, as a lack of progress in the U.S. toward addressing its deficit led investors out of riskier assets like stocks and fueled a shift into the dollar and Treasurys for their safe-haven status.

“The best excuse for the strength seems to be the supercommittee’s abject failure,” said David Ader, head of government bond strategy at CRT Capital Group.

Bonds held onto gains after the Treasury Department received good demand at its sale of 2-year notes, the first of three debt sales in the holiday-shortened week.

Debt supercommittee to wrap up with no deal

The yields on 10-year notes TMUBMUSD10Y, 0.698% , which move inversely to prices, fell 5 basis points to 1.96%. A basis point is one one-hundredth of a percentage point.

Yields on 30-year bonds TMUBMUSD30Y, 1.471% declined 5 basis points to 2.95%.

Two-year note yields TMUBMUSD02Y, 0.128% slipped 1 basis point to 0.27%.

Analysts also noted that trading volume is falling ahead of the Thanksgiving holiday, which may exaggerate price action.

The congressional committee assigned to draft a plan for cutting $1.2 trillion from the nation’s deficit over 10 years is expected to announce Monday that it has failed, according to media reports. Read more on supercommittee.

The expected failure of the supercommittee could ultimately trigger automatic spending cuts and leave unresolved whether payroll-tax cuts and extended unemployment benefits would expire, among numerous question marks.

“If the committee can’t do anything, then the across-the-board cuts will be a more than 1% drag on GDP next year,” said Paul Zemsky, chief investment officer of multi-asset strategies at ING Investment Management. “Just as things we’re starting to improve in the U.S., it’s pouring cold water on the recovery.

Treasury yields under 2% are not a good investment but “the place you go if you’re panicking or absolutely can’t afford to lose a dime,” he said. The committee was supposed to come up with recommendations that can be analyzed by the Congressional Budget Office at least 48 hours before a deadline to vote on the plan on Wednesday.

“Headlines about the near certain failure of the US debt super-committee have sent global equity markets lower and spurred a flight to safe havens, ratings pressure be damned,” said Bill O’Donnell and John Briggs, bond strategists at RBS. “Treasury market inflows from safe-haven seekers have trumped outflows from those worried about additional ratings actions.”

U.S. stocks fell sharply, with the Standard & Poor’s 500 Index SPX, +0.82% losing 2%. See more on U.S. stocks.

Renewed concerns about France’s AAA credit rating also weighed on risk appetite. See story on European bond sell-off.

Bonds stayed up after data showed existing-home sales in October rose 1.4% to a seasonally adjusted annual rate of 4.97 million from 4.9 million in September. Read more on existing home sales.

Strong demand at auction

Bonds held onto gains after the government received good demand at its sale of $35 billion in 2-year notes at a yield of 0.28%, a little lower than traders expected.

Bidders offered to buy 4.07 times the amount of debt offered, the highest since at least early 2009 and above the average of 3.5 times at the last four sales. See Treasury auction results.

Indirect bidders, a group which includes foreign central banks, bought 42.2% of the auction, the highest since February 2010 and above the average of 33.8% of recent sales.

Direct bidders -- which includes domestic money managers -- purchased another 11.2%, compared to 14.2% on average.

On Tuesday, the government will sell 5-year notes TMUBMUSD05Y, 0.278% followed by 7-year notes TMUBMUSD07Y, 0.480% the following day. Bond markets are expected to be closed Thursday and observe an early close on Friday.

Last week, long-term bond yields fell as worries about European debt, mostly involving Italy, and the congressional committee drove interest in Treasury bonds. Read about Treasury gains last week.