NEW YORK: US safe-haven Treasuries prices rose on Monday on continued concerns over China and emerging market economies, while month-end buying gave longer-dated Treasuries prices a greater boost.
China, the world's second-biggest economy, will release its official reading on August factory conditions on Tuesday and economists polled by Reuters believe activity likely shrank at its fastest pace in three years. Concerns about other emerging market economies also underpinned Treasuries prices.
In addition, purchases of longer-dated Treasuries to meet with expected month-end changes to portfolio benchmarks also pushed bond prices higher, analysts said.
"The concerns about instability in the emerging markets, specifically China, will maintain that flight-to-quality bid," said Sharon Stark, chief fixed income strategist at D.A. Davidson & Co in St. Petersburg, Florida.
Stark also said uncertainty about the Fed's timeline for hiking interest rates caused some volatility in the bond market on Monday.
While yields were lower on the day, they were higher in early trading, with two-year notes hitting a more than three-week high of 0.743 percent. Shorter-dated Treasuries prices received only a slight bid given investors' nervousness about a Fed rate hike in 2015, analysts said. Shorter-dated notes are considered most vulnerable to a rate hike.
US inflation will likely rebound as pressure from the dollar fades, allowing the Fed to raise interest rates gradually, Fed Vice Chairman Stanley Fischer said on Saturday in a speech careful not to overreact to a possible Chinese slowdown.
Analysts said Fischer's comments suggested that the US central bank could still be on track to raise rates this year.
"When you have the second-largest economy in the world clearly moving toward recession, and a Fed that's going to continue moving forward despite that, it's a very good reason to flatten the curve," said Justin Hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago.
He said the subdued bid for short-dated Treasuries and greater bid for longer-dated debt showed the "curve flattening" trade. US 30-year Treasuries were last up 15/32 in price to yield 2.88 percent, from a yield of 2.91 percent late on Friday. Benchmark 10-year Treasuries were last up 8/32 in price to yield 2.15 percent, from a yield of 2.18 percent late Friday.
Two-year notes were last up 1/32 in price to yield 0.71 percent, from a yield of 0.73 percent late Friday. On Wall Street, the benchmark S&P 500 stock index was last down 0.52 percent.
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