LONDON, Feb 5 (Reuters) - U.S. government bond prices dipped on Tuesday in European trade after a survey of business activity in the euro zone exceeded expectations, denting demand for assets perceived as safe havens.
Markit’s Eurozone Composite PMI, seen as a good gauge of economic growth, rose in January to a 10-month high of 48.6 from 47.2 in December - an improvement on the preliminary reading of 48.2.
The data brought back some optimism about the euro zone after the region’s lower-rated states were hit by worries over their political stability on Monday.
In Spain, the opposition asked Prime Minister Mariano Rajoy to resign over a corruption scandal, while in Italy former premier Silvio Berlusconi - a pariah for many investors - is gaining in opinion polls.
Benchmark 10-year T-note yields were 2.5 basis points higher at 1.9818 percent. On Monday, the yields hit their highest since April last year at 2.059 percent before dipping back below 2 percent.
T-note futures were 3/32 lower on the day at 131-13/32.
“PMI numbers came out a bit better than expected and that set the tone,” one trader said, adding that even better data was needed to sustainably break above the 2 percent level.
The ISM non-manufacturing PMI data later in the session will be watched for further evidence that the U.S. economy is recovering after a raft of mostly upbeat data earlier this year.
The recent economic improvement is not considered enough to sway the Federal Reserve to change its stimulus policy any time soon. The Fed on Monday bought $3.23 billion in Treasuries that mature between February 2020 and November 2022, as part of its $44 billion purchase of Treasuries in February.
That, coupled with the absence of new long-term debt supply from the U.S. Treasury this week, “took the sting out” of T-notes, the trader said.