Treasuries Climb as China Factory Slowdown Spurs Safety BidBy and
U.S. equities follow stock markets in Europe and Asia lower
Traders see 30% chance of Fed interest-rate raise in September
Treasuries advanced on signs that China’s economic slowdown has deepened, fueling demand for the relative safety of government debt.
Treasuries rose as the S&P 500 fell 3 percent, following shares in Europe and Asia lower after a gauge of Chinese manufacturing dropped to a three-year low. Bonds also rallied after a report showed U.S. manufacturing expanded at the slowest pace in two years last month.
“It’s an early-warning indicator,” said David Keeble, the New York-based head of fixed-income strategy at Credit Agricole SA. “Manufacturing is very sensitive to the global economy. There’s a move back into Treasuries as a result.”
The benchmark 10-year note yield fell seven basis points, or 0.07 percentage point, to 2.15 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The 2 percent security due in August 2025 climbed 18/32, or $5.63 per $1,000 face amount, to 98 20/32. The market reversed course after yields advanced four basis points Monday.
The Institute for Supply Management’s index fell to 51.1 in August, lower than the 52.5 median economist forecast in a Bloomberg survey. A measure of exports matched the weakest reading since April 2009.
Futures traders are betting the Federal Reserve will push back an interest-rate increase to later this year. The likelihood they assign a September move has fallen to 32 percent, down from 48 percent two weeks ago, according to data compiled by Bloomberg. The chances assume that the federal funds rate will average 0.375 percent after the first hike.
“A September liftoff is a close call,” said David Schnautz, a London-based fixed-income strategist at Commerzbank AG. “The strength of the U.S. economy doesn’t warrant the current low rates, but other factors may be taken into consideration.”
Forty-eight percent of 54 economists surveyed Aug. 27-31 by Bloomberg News see a September increase in the benchmark lending rate, the first move up since 2006. That’s down from 77 percent in an Aug. 7-12 survey, though it is still double the 24 percent who say the first move will occur in December. Seventeen percent said October.
The difference between yields on 10-year notes and those on similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, dropped to a six-year low of 1.44 percentage points intraday on Aug. 24. On Tuesday it slipped to 1.57 percentage points, retreating from a three-week high hit earlier in the trading session.
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