NEW YORK: U.S. Treasury yields fell on Monday as fears that property developer ChinaEvergrande Group might default deepened a global equity sell-off and spurred investors to buy safe-haven bonds.
Treasury prices rallied, pushing yields on the benchmark 10-year note down 6.4basis points to 1.3057pc as the main stock indexes on Wall Street fell more than 2pc.
Shares in Hong Kong-listed Evergrande plunged as much as 19pc to more than 11-yearlows, raising concerns about the health of China's economy and the potential impact on other markets.
Evergrande has been scrambling to raise funds to pay its lenders, suppliers and investors,with regulators warning that its $305 billion of liabilities could spark broader risks to thefinancial system if not stabilised.
Bond prices rose and their yields fell further as stocks sold off, but the reaction inTreasuries was still muted as bond traders already were positioned for a sell-off, Jim Vogel,interest rate strategist at FHN Financial in Memphis, said.
The 10-year yield on Friday hit two-month highs as investors anticipated major central bankswould start providing clues about tapering during a busy week for policy-setters, including the Federal Reserve's two-day meeting starting Tuesday.
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"A lot of people that are not yet willing to buy in front of the FOMC on Wednesday. It justseems like a low payoff event because if you think about it, what could send rates fundamentally lower from here?" Vogel said.
"There's possible upside in buying today, particularly if China comes back ... to support itsmarkets overnight," he said. "Then you've got some downside risk to committing here today."
Tom Simons, money market economist at Jefferies LLC, said the severity of risk that Evergrande poses may be overblown as many people outside of China were unfamiliar with the company's problems before last week.
"Evergrande, frankly, to me feels more like a topic of conservation than a salient marketrisk," Simons said. "At the end of the day, China is not going to allow this to spiral out ofcontrol."
The 30-year Treasury bond yield dropped 6.6 basis points to 1.8444pc.
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Analysts expect the Fed to open the door to reducing its monthly bond purchases while tyingany actual change to U.S. job growth.
"In order to get a November announcement, there probably needs to be a hint of that in thestatement that's coming out this week," Simons said.
The Fed's reverse repo facility, which offers approved money managers the option to lend money overnight to the U.S. central bank in return for Treasury collateral, set a record $1.224 trillion on Monday. Borrowing rates in the overnight repurchase agreement market were at five basis points.
A record amount in the reverse repo speaks to an abundance of cash in bank coffers withnowhere to go.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields ontwo- and 10-year Treasury notes, seen as an indicator of economic expectations, wasat 108.8 basis points.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 1 basis points at 0.216pc.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.482pc.
The 10-year TIPS breakeven rate was last at 2.305pc, indicating the market sees inflation averaging about 2.31pc a year for the next decade.