September 23, 2019 / 2:39 PM / a month ago

TREASURIES-U.S. yields fall, tracking Europe, as risk appetite weakens

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 23 (Reuters) - U.S. Treasury yields slid on
Monday, in line with the European bond market, as risk appetite
faded after softer-than-expected euro zone business activity
data fueled recession fears in the region.
    U.S. 30-year, 10-year and 2-year yields all fell to two-week
lows.
    "Today's moves were due to weak European data, although
we're slowly drifting off the lows in yields so markets are not
taking it too badly," said Gennadiy Goldberg, senior rates
strategist at TD Securities in New York.
    German private sector activity contracted for the first time
in 6-1/2 years in September as a manufacturing recession
deepened unexpectedly and growth in the service sector lost
momentum, a survey showed on Monday.
    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 U.S. services sector index, on the
other hand, was slightly lower than market expectations.

    "The mix of (U.S.) 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 release of the numbers.
    In morning trading, U.S. benchmark 10-year note yields
 fell to 1.678% from 1.753% late on Friday, after
hitting a two-week low of 1.677%.
    Yields on 30-year bonds were also lower, at 2.126%
 from 2.198% on Friday, touching a two-week trough of
2.12%.
    On the short end of the curve, U.S. 2-year yields were down
at 1.644% from Friday's 1.712%, after earlier falling
to a two-week low of 1.64%.
    Andy Catalan, senior portfolio manager and head of long
duration at Insight Investment in New York, believes that given
generally solid U.S. economic fundamentals, U.S. yields should
be higher than where they are currently.
    "If you go 12 months out, you would expect the 10-year
(yield) to hover around 2 pct," Catalan said. "But we also
recognize that from a technical perspective, where there is
pressure of lower rates around the world, that it's also
pressuring U.S. rates lower despite the prospects that we have
here, which are materially different than in Europe."
    
      September 23 Monday 10:22AM New York / 1422 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.87         1.9097    0.000
 Six-month bills               1.8575       1.9059    -0.010
 Two-year note                 99-188/256   1.6399    -0.072
 Three-year note               99-204/256   1.5701    -0.078
 Five-year note                98-144/256   1.5537    -0.080
 Seven-year note               98-104/256   1.6189    -0.081
 10-year note                  99-132/256   1.6783    -0.075
 30-year bond                  102-184/256  2.1266    -0.071
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -0.50         0.00    
 spread                                               
 U.S. 3-year dollar swap        -2.25         0.25    
 spread                                               
 U.S. 5-year dollar swap        -5.75         0.25    
 spread                                               
 U.S. 10-year dollar swap      -12.00        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -42.00         0.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)
  
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