September 23, 2019 / 7:36 PM / a month ago

TREASURIES-U.S. yields fall, in line with Europe, as risk appetite worsens

 (Adds new comment, Treasury supply, updates prices)
    * U.S. 30-year, 10-year, 2-year yields fall to 2-week lows
    * Treasury supply heavy this week
    * Weak euro zone data pushes German yields to lowest since
Sept 12
    * U.S. manufacturing data higher than consensus, August
level 

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 23 (Reuters) - U.S. Treasury yields dropped
on Monday, in line with the European bond market, as risk
appetite ebbed 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.
    Treasury supply is also heavy this week, but diminished risk
appetite prevented investors from selling Treasuries to push
yields higher, so they can buy the new issues at a lower price,
analysts said.
    The Treasury department will sell $113 billion in
shorter-dated notes: $40 billion in two-year notes on Tuesday,
$41 billion in five-year notes on Wednesday, and $32 billion in
seven-year notes on Thursday. There's also $18 billion in
two-year floating rate notes on Wednesday. 
    U.S. yields started their descent after a survey showed
German private sector activity contracted for the first time in
6-1/2 years in September.
    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 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 the release of the
numbers.
    In afternoon trading, U.S. benchmark 10-year note yields
 fell to 1.714% from 1.753% late on Friday, after
hitting a two-week low of 1.677%.
    Yields on 30-year bonds were also lower, at 2.161%
 from 2.198% on Friday, touching a two-week trough of
2.12%.
    U.S. 2-year yields were down at 1.672% from
Friday's 1.712%, after earlier falling to a two-week low of
1.64%.
    Neil Shearing, group chief economist at Capital Economics, 
said extremely low, or negative yields, have potentially huge
consequences for financial markets.
    He noted that low long-term interest rates and flat yield
curves could weigh on banks' profitability and affect pension
funds' and insurers' ability to meet their obligations.
    "And while there is not much sign that low rates are
fuelling asset price bubbles now, the risk that they lead to a
misallocation of resources and or inflate asset bubbles will
increase the longer they stay at rock-bottom levels."
    
      September 23 Monday 3:13 PM New York / 1913 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.865        1.9046    -0.005
 Six-month bills               1.87         1.9188    0.003
 Two-year note                 99-171/256   1.675     -0.037
 Three-year note               99-176/256   1.6079    -0.040
 Five-year note                98-102/256   1.5887    -0.045
 Seven-year note               98-44/256    1.6551    -0.045
 10-year note                  99-48/256    1.7146    -0.038
 30-year bond                  101-232/256  2.163     -0.035
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -1.00        -0.50    
 spread                                               
 U.S. 3-year dollar swap        -3.00        -0.50    
 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      -42.50        -0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler
and Andrea Ricci)
  
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