NEW YORK: US Treasury yields tumbled on Tuesday as a surprise currency devaluation by China touched off safety buying and fueled speculation that Federal Reserve policymakers will delay raising US interest rates.
China's 2 percent devaluation, which the central bank called a "one-off depreciation," pushed the yuan to a near three-year low against the dollar and rattled Wall Street and other stock markets in Europe and Asia.
The MSCI world equity index, which tracks shares in 45 nations, fell 0.85 percent and Wall Street was down more than 0.5 percent in early activity.
High quality bonds, such as German Bunds, drew investors worried about a possible currency war and fallout for the global economy.
The 10-year Bund's yield fell 4 basis points to 0.65 percent. Coming off a day of price declines with traders focused on auctions of new government debt, Treasury price gains on Tuesday were strongest among longer maturities.
The 30-year bond was up 1-13/32 after yielding as little as 2.8220 percent, a low last touched on May 4. "People seem to be trading this as a reason for Fed delay," said Michael Wallace, global market strategist at Action Economics in San Francisco.
"This puts the Fed tightening horizon back on the table in terms of discussion."
The Fed has been largely seen as ending an era of near-zero short-term rates sometime in 2015, with a first hike in almost a decade possibly coming in September.
But policymakers, who appear to be focused on US labor conditions and inflation as key prompts for launching rate increases, may delay out of concern of hurting global economic growth.
Treasuries briefly trimmed gains when the government reported US non-farm productivity as rebounding in the second quarter, but the data came with a weak underlying trend suggesting inflation could accelerate more than economists have anticipated.
The benchmark Treasury 10-year note was last up 24/32, trading near the session high. It yielded 2.1498 percent after closing on Monday at 2.238 percent. The 5-year was up 13/32 in price, yielding 1.5315 percent.
The 5-year to 30-year yield curve steepened slightly, increasing 1 point to nearly 129.4 basis points, after flattening on Friday to its smallest differential since April. US jobs data on Friday boosted convictions the Fed will next month start raising rates.
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