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)