LONDON, April 23 U.S. Treasuries were higher on
Tuesday, pushing 10-year yields to 4-1/2 month lows after data
showed a slowdown in business activity in China and Germany,
fuelling concerns about the global growth outlook.
Treasuries followed German bonds higher after Markit's flash
German composite Purchasing Managers' Index (PMI), which
measures both manufacturing and service sectors, shrank for the
first time in five months in April.
This came after figures showing China's big factory sector
dipped in April, signalling the world's second biggest economy
could struggle in the second quarter, and a report on Monday
revealing a dip in the U.S. housing market.
"It's a global growth story. China's weaker data, Germany in
a reversal of form had very weak manufacturing and services PMI
and that's giving Treasuries a bid here," a trader said.
The U.S. 10-year T-note was up 9/32 in price to
yield 1.664 percent, its lowest since mid-December 2012 and down
3 basis points from late U.S. trade on Monday.
Although Treasury yields briefly rose on Monday as the
re-election of Italian President Giorgio Napolitano raised hopes
for the formation of a new government, reducing safe-haven bids
for bonds, concerns about the softening U.S. economic picture
overwhelmed the market in the end.
A string of weak data, including payrolls earlier this
month, and a recent fall in commodity prices have fanned
expectations U.S. inflation could slow further, killing chances
of the Federal Reserve tapering its bond buying programme soon.
Treasuries yields were expected to remain subdued, and could
even fall towards early December lows if U.S. new home sales
figures for March due at 1400 GMT maintain the downbeat trend.
"The market is in relatively good shape despite the fact
that equities are positive in Europe. The focus continues to be
on the recent run of weak data," the same trader said.
"A lot of guys had sold against the 1.68 percent (10-year
yield level reached after U.S. non-farm payrolls) and now they
are short and they need to claw back so the path is possibly
towards lower yields. We might be target 1.62 percent again."
(Reporting by Emelia Sithole-Matarise/editing by Chris Pizzey,
London MPG Desk, +44 (0)207 542-4441)