LONDON: The yield on US 10-year Treasuries hovered near 5-1/2 week lows in Europe on Wednesday and within sight of historic troughs on concerns over a global economic slowdown and the euro zone debt crisis.
Rising expectations that a slowing US economy will prompt the Federal Reserve to launch a third round of quantitative easing are also keeping benchmark US bond yields depressed.
The 10-year T-note last yielded 1.51 percent, little changed from late US trade. It hit a record low of 1.44 percent on June 1, down from around 2.40 percent in March as fears about the impact of the European debt crisis prompted investors to seek safe-haven fixed-income assets.
"There's a lot of resilience to this market and it's got to do with the economic situation across the globe ... The economic data is coming out universally poor out of the States and the euro resolution of the bailout that was offered last week disappointed," a trader said.
Investors are fretting about the implementation hurdles facing the euro zone's efforts to contain a three-year debt crisis that is threatening to engulf Spain and Italy.
The latest source of uncertainty was a hearing by the German Constitutional Court into whether the euro zone's bailout fund, known as the European Stability Mechanism, and planned changes to the region's budget rules are compatible with German law.
Investors will also be looking to the minutes of the US central bank's meeting last month, due at 1800 GMT, to gauge the extent to which the Fed is leaning toward more easing steps, particularly in the wake of last week's disappointing employment report.
Wall Street economists see a 70 percent chance the Fed will attempt to spur borrowing and demand with a third round of quantitative easing, or QE3, according to a Reuters poll conducted on Friday.
But Arihiro Nagata, the head of foreign bond investment at Sumitomo Mitsui Banking Corp in Tokyo, had a different opinion. "The Fed meetings this and next month will be crucial. Many people may again get their hopes high for more easing, but I doubt the bank would loosen the policy further. They know that it really is their last resort," he said.
The yield on 30-year bonds stood at 2.62 percent, largely unchanged from late US trade on Tuesday.
The market is also bracing for a $21 billion sale of 10-year notes at 1700 GMT. Although recent 10-year note auctions have met solid demand given worries over the euro zone debt crisis and an uncertain global growth outlook, some market participants said near record low yields could start undermining demand.
"There are signs of weakening demand at the margin. For instance, the bid-cover ratio has declined steadily from its year-end highs, Barclays Capital strategists said in a note.
"Despite strong auction performance, the underlying allotment data show that on a 3-month moving average basis, the broker-dealer takedown has increased to 54 percent, from 50 percent in March, driven by the decline in demand from foreign investors," they said.
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