US bond yields fall on weak Chinese data

NEW YORK: US Treasury yields fell on Tuesday in line with Japanese yields after weak Chinese data revived fears of a global economic slowdown, increasing demand for safe-haven government debt.

The benchmark 10-year Treasury note and on the 30-year bond yields dropped from one-month highs after data showed China's February trade performance was worse than expected. Chinese exports fell 25.4 percent, the most in over six years and twice as much as markets had feared.

In Japan, the 30-year Japanese government bond yield sank to a fresh record low after firm demand at an auction of the maturity added bids.

"We're still trading on China because that was an ugly number overnight and there's a fear they could devalue the yuan again, which always causes a flight to quality," said Ellis Phifer, market strategist at Raymond James in Memphis.

Concerns about a slowdown in the Chinese economy and over bank exposures to the energy sector had boosted demand for lower-risk assets earlier this year.

"The overnight price action from JGBs combined with Chinese data and easing prospects from the ECB on Thursday are making investors pay attention to global factors that will keep Treasuries supported," said Stanley Sun, interest rate strategist at Nomura Securities International in New York.

The European Central Bank is expected to push interest rates further into negative territory and make an adjustment to its bond-buying program on Thursday. But after the bank disappointed many in December, traders are wary of making major bets prior to the meeting.

The Treasury Department sold $24 billion of 3-year notes to surprisingly disappointing demand as investors had expected the general flight to safety mood in the market to drive more investors to the U.S. auction.

"Cheap outright levels weren't enough to bring in buyers, said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York. "Perhaps the yield pickup at the front-end is just not enough to compensate for the risk of a more hawkish Fed."

Still, traders expect to see strong demand at the Treasury's $20 billion sale of 10-year notes Wednesday and $12 billion of 30-year bonds on Thursday.

The benchmark 10-year note yield was last up 22/32 in price to yield 1.829 percent, down from 1.904 percent late on Monday.

The 30-year bond was last up 1-12/32 in price to yield 2.635 percent, down from 2.703 percent late on Monday.