TREASURIES-Yields lowest since November on weak manufacturing data

Mon Feb 3, 2014 11:16am EST

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* Yields lowest in nearly three months on weak data
    * Emerging markets calmer, reducing Treasuries' safety bid
    * Fed buys $1.25 bln bonds due 2038-2043

    By Karen Brettell
    NEW YORK, Feb 3 (Reuters) - U.S. Treasuries yields fell to
their lowest levels since November on Monday after a report
showed that U.S. manufacturing grew at a substantially slower
pace in January. 
    New order growth plunged by the most in 33 years, driving
overall factory activity to an eight-month low. 
    The report sent Treasuries prices back into positive
territory, after the bonds had earlier weakened on solid
European growth and some calming in emerging market assets.
    "Overall this is a weak number and it does suggest some
dramatic slowing in economic activity," said Millan Mulraine,
deputy head of U.S. research and strategy at TD Securities in
New York.
    "One can put most of this down to the unseasonably cold
weather that we've had over the past two months, we've seen that
in other economic reports. The big question is whether that
proves to be temporary and we think that it will," he said.
    Treasuries yields had earlier edged up after data showed
that manufacturers around the world enjoyed a solid start to the
year as order books swelled, though a struggle for growth in
China and a downturn in France took the shine off the overall
picture. 
    Data earlier on Monday also showed that U.S. manufacturing
grew less briskly in January after hitting an 11-month high the
prior month as output and overseas demand slowed.
 
    Ten-year notes were last up 8/32 in price to
yield 2.619 percent, the lowest since November 8.
    Benchmark 10-year yields have fallen as volatility in
emerging markets that some blame on the U.S. Federal Reserve's
attempts to reduce stimulus lead investors to seek the safety of
U.S. bonds.
    Monday's weak manufacturing report sent yields still lower
as investors weigh whether weakening data may lead the Fed to
slow or pause its reduction in its monthly bond purchases.
    The Fed is not due to meet next until March, which will give
it time to evaluate whether recent weakness is weather-related.
    The U.S. central bank last week cut its monthly asset
purchases by $10 billion to $65 billion. The next main focus for
investors will be Friday's highly anticipated employment report
for January.
    The Treasuries rally has also been helped by purchases by
investors rebalancing portfolios for month-end, and by
short-covering by investors who had positioned for higher
yields.
    The Fed will buy Treasuries every day this week as part of
its ongoing purchases, including two separate operations on
Wednesday. On Monday the Fed bought $1.25 billion in bonds due
2038 and 2043.
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