Treasury yields fall as risk appetite worsens

25 Sep, 2019

US Treasury yields dropped on Monday, in line with the European bond market, as risk appetite ebbed after softer-than-expected euro zone business activity data fueled recession fears in the region.
US 30-year, 10-year and 2-year yields all fell to two-week lows.
Treasury supply is also heavy this week, but diminished risk appetite prevented investors from selling Treasuries to push yields higher, so they can buy the new issues at a lower price, analysts said.
The Treasury department will sell $113 billion in shorter-dated notes: $40 billion in two-year notes on Tuesday, $41 billion in five-year notes on Wednesday, and $32 billion in seven-year notes on Thursday. There's also $18 billion in two-year floating rate notes on Wednesday.
US yields started their descent after a survey showed German private sector activity contracted for the first time in 6-1/2 years in September.
French business activity also slowed unexpectedly and Markit's euro zone composite flash PMI fell to 50.4 in September from 51.9 in August.
The weak data pushed Germany's benchmark 10-year bond yield to -0.59%, its lowest since the Sept. 12 European Central Bank meeting that concluded with rate cuts and fresh asset purchases to boost weak growth.
In the United States, the IHS Markit manufacturing index for September was 51, slightly better than the consensus forecast and the August number.
"The mix of (US) data is much better than those out of Germany and the euro zone in general and reflects an economy still in expansion with low inflation, which will keep the October Federal Reserve policy decision on the fence for now," Action Economics said in its blog after the release of the numbers.
In afternoon trading, US benchmark 10-year note yields fell to 1.714% from 1.753% late on Friday, after hitting a two-week low of 1.677%.
Yields on 30-year bonds were also lower, at 2.161% from 2.198% on Friday, touching a two-week trough of 2.12%. US 2-year yields were down at 1.672% from Friday's 1.712%, after earlier falling to a two-week low of 1.64%.

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