• Oil price surge may add to economic weakness.
  • Federal Reserve expected to cut rates on Wednesday.

NEW YORK: US Treasury yields fell on Monday after weekend attacks on crude facilities in Saudi Arabia shut about 5% of the world's oil supply, sending oil prices soaring and increasing demand for safe haven US debt.

US officials blamed Iran and President Donald Trump said Washington was “locked and loaded" to retaliate.

The Iran-aligned Houthi movement that controls Yemen's capital claimed responsibility for the attack, which damaged the world's biggest crude oil processing plant. Iran denied blame and said it was ready for “full-fledged war."

“It's a flight to quality as a result of the Saudi oil field attacks, which have added yet another uncertainty for the Fed and the global growth outlook," said Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York.

Benchmark 10-year notes gained 13/32 in price to yield 1.854%. The yield is down from a one-and-a-half month high of 1.908% reached on Friday.

The conflict comes as global central banks are cutting interest rates in a bid to revive slowing growth.

The Federal Reserve is expected to cut rates by 25 basis points when it concludes its two-day meeting on Wednesday.

Data from China added to global growth concerns on Monday, with growth in industrial production dropping to its weakest in 17-1/2 years amid spreading pain from a trade war with the United States and softening domestic demand.

In the United States, the New York Federal Reserve said its gauge of business growth in New York state declined more than forecast in September.