NEW YORK: US Treasury debt prices inched higher on Monday in a safe-haven bid on concerns about weak US economic data and the steep drop in Brazil's stock market following the re-election of incumbent leftist Dilma Rousseff.
Economic data on the world's largest economy wobbled again on Monday, as a slowing in the US services sector and a less-than-expected rise in pending home sales lifted US bond prices.
US government 30-year bond yields, which move inversely with prices, fell after four straight days of gains, while yields on benchmark 10-year Treasuries slid for a second consecutive session. "There is concern on the part of global investors about the likelihood that we do return to recession or growth that is significantly below trend," said Kirk Barneby, portfolio manager of the Centre Active US Treasury Fund in New York.
The Brazilian stock market, meanwhile, was down nearly 3 percent, while the real tumbled to a near six-year low against the dollar as Rousseff, who has been blamed for the country's sluggish economy, won re-election Sunday night. Many investors had backed rival candidate Aecio Neves. Brazil's outcome has turned investors cautious on risky assets overall.
"People are concerned about the economy in Brazil and emerging markets in general," said Tom di Galoma, head of rates and credit trading at ED&F Man in New York. "So I'm looking at the yield of 10-year notes supported at 2.30 percent, going back to 2.20 at some point." Benchmark 10-year Treasury notes last traded up 3/32 in price with a yield of 2.260 percent from 2.275 percent on Friday.
The 10-year yield fell to a session low after contracts to buy previously-owned US homes rebounded less than expected in September, pointing to just a gradual housing market recovery. "Treasuries are somewhat overvalued, unless we're going to go into a global recession," said Centre's Barneby, who added that wasn't the scenario he expects. "A more likely scenario is that the US recovery continues and, as a consequence, we will begin to see upward pressure on rates."
The 30-year bonds rose 10/32 for a yield of 3.038 percent, from Friday's 3.046 percent. US 30-year prices hit session highs after data showed the pace of growth in the US services sector slowed in October compared with the previous month to its lowest level in six months.
The flash services sector Purchasing Managers Index compiled by Markit slipped to 57.3 in October from 58.9 in September, hitting its lowest level since April.
Also on Monday, the New York Federal Reserve conducted what could well be the last of the quantitative easing buybacks, purchasing between $850 million to $1.05 billion in bonds dated from February 15, 2036 through August 15, 2044.
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