NEW YORK: Concerns about growth highlighted by the fifth straight monthly drop in German business sentiment weakened equities and the euro and boosted safe-haven US Treasuries on Monday.
Long-dated Treasuries outperformed, balancing out their underperformance on Friday.
Stock index futures slipped. The euro was hurt by the German sentiment survey and uncertainty about Spain's progress toward asking for a bailout.
Business sentiment in Germany, the strongest of the euro zone's economies, fell in September, despite the European Central Bank's recent announcement of a bond-buying plan and the Federal Reserve's mid-September Federal Open Market Committee (FOMC) statement that it would start a third phase of quantitative easing to boost the economy and cut unemployment.
A Chicago Fed index of national economic activity remained subdued in August, with a reading of -0.87 versus a revised reading of -0.12 in July.
"The Chicago Fed numbers were a little soft, German business was down, and all eyes are on Spain as they finalize their budget this week," a trader said.
Spain is due to announce its new budget on Thursday and bank stress test results are due the next day. Banking sources told Reuters lenders would transfer property assets into Spain's new bad bank at an average discount of 45 percent to 50 percent of original book value, though the sources cautioned that the discount was still being discussed.
Prices of US Treasuries rose and yields eased, leaving the 10-year benchmark Treasury note up 7/32 and its yield at 1.73 percent, down from 1.75 percent on Friday and from 1.88 percent a week before that.
The 30-year Treasury bond traded 14/32 higher on the day, allowing its yield to ease to 2.92 percent from 2.94 percent late on Friday.
Treasuries on Monday were extending last week's rally when spreads "tightened relentlessly as the market reversed the post-FOMC curve steepening," said Chris Bury, co-head of US rates, sales and trading at Jefferies & Co in New York.
Bury recommended being short the five and seven-year Treasury sector early in the week due to upcoming auctions.
"Coming out of the auctions, we would like to be long to take advantage of month-end flows," he said.
The Treasury will sell a total of $99 billion in two-, five- and seven-year notes this week $35 billion in two-year notes, $35 billion five-year notes, and $29 billion in seven-year notes in addition to the weekly bill auctions.
Yields have risen for a month as actions by the ECB and the Fed persuaded investors to emphasize riskier assets like stocks, the euro, oil and gold over safe-haven assets like German bunds and US Treasuries.
Highlights of US economic data due this week include September consumer confidence due on Tuesday, new home sales due on Wednesday, durable goods orders and jobless claims due on Thursday and a regional manufacturing index due on Friday.
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