NEW YORK (Reuters) – The benchmark 10-year U.S. government bond hit an 11-month low on Wednesday, beginning the year down nearly 50 percent from its 2018 high amid concerns about a global growth slowdown.
FILE PHOTO: An employee works at a production line of lithium ion batteries inside a factory in Dongguan, Guangdong province, China October 16, 2018. Picture taken October 16, 2018. REUTERS/Joyce Zhou/File Photo
Investors piled into safe-haven investments like Treasuries and German bunds after weak data out of Asia and Europe was reported overnight and a partial shutdown of the U.S. government continued.
“Chinese PMI came in weaker than expected and gave a risk-off tone to global markets. There are now mounting concerns about global growth,” said Justin Lederer, Treasury analyst and trader at Cantor Fitzgerald.
The 10-year Treasury yield US10YT=RR was down 3 basis points, last at 2.66 percent, approaching the key level of 2.64 percent, a retracement of 50 percent from the 2018 high yield of 3.25 percent.
“If 2.64 percent is broken to the downside, look for a move to 2.49 or 2.48 percent on 10-year yields as selling pressure continues on the global equity complex,” wrote Tom di Galoma, managing director at Seaport Global Holdings.
The benchmark 10-year German government bond DE10YT=RR was down 9.5 basis points, last at 0.15 percent. U.S. stocks opened sharply lower on Wednesday, with the S&P 500 index .SPX down 1.44 percent and the Dow Jones Industrial Average .DJI down 1.43 percent. Twenty-nine of the 30 Dow components were in the red in pre-market trading and one was flat.
China’s factory activity contracted for the first time in 19 months in December, hit by the Chinese-U.S. trade war, the private Caixin/Markit PMI survey showed, with the weakness spilling over to other Asian economies.
And euro zone manufacturing activity barely expanded at the end of 2018 in a broad-based slowdown, according to a survey which showed scant signs for optimism as the new year begins. IHS Markit’s December final manufacturing Purchasing Managers’ Index fell for a fifth month, coming in at 51.4 from November’s 51.8, matching a flash reading but barely above the 50 level separating growth from contraction.
“There’s a demand for safe-haven bonds. You see that in U.S. Treasuries, and you see it in German bunds, though that’s in a catch-up, and Japanese 10-years are negative,” Lederer said.
The grim readings come ahead of the closely watched U.S. manufacturing survey on Thursday, payrolls data on Friday and the U.S. earnings season later this month, which is expected to show corporate profit shrank in the October-December quarter.
Yields on long-dated maturities fell faster than those at the short end, flattening the yield curve to a spread of 16.5 basis points between the two- and 10-year note yields US2US10=TWEB.
Reporting by Kate Duguid; Editing by Paul Simao