US bond yields drop as Chinese data weighs on risk appetite

NEW YORK: US Treasury yields fell on Tuesday in line with Japanese yields after weak Chinese data revived fears of a global economic slowdown, increasing demand for safe-haven US government debt ahead of a 3-year note auction.

Yields on the benchmark 10-year Treasury note and on the 30-year bond fell from one-month highs overnight after data showed China's February trade performance was far worse than economists had expected.

Exports in the world's second-largest economy fell 25.4 percent, the most in over six years and twice as much as markets had feared.

The data weighed on risk assets and in Japan, the 30-year Japanese government bond yield sank to a fresh record low after firm demand at an auction of the maturity added bids.

"The combination of weak Chinese data and low Japanese yields has precipitated a significant flattening of the curve with the long bond leading the way," said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York.

Concerns about a slowdown in the Chinese economy and its effects on other markets as well as over bank exposures to the energy sector boosted demand for lower-risk assets earlier this year.

"The overnight price action from JGBs combined with Chinese data and easing prospects from the ECB on Thursday are making investors pay attention to global factors that will keep Treasuries supported," said Stanley Sun, interest rate strategist at Nomura Securities International in New York.

The European Central Bank is expected to push interest rates further into negative territory and make an adjustment to its bond-buying program on Thursday.

But after the bank disappointed many in markets in December, traders are wary of making major bets prior to the meeting. Demand for safer assets will likely be seen at auctions held by the Treasury Department this week. Later in the day, the Treasury will sell $24 billion of 3-year notes.

"US Treasuries still look pretty darn good in relation to much of what's happening in the rest of the world," said Kohli. The Treasury will also sell $20 billion of 10-year notes on Wednesday and $12 billion of 30-year bonds on Thursday.

The benchmark 10-year note yield was last up 26/32 in price to yield 1.811 percent, down from 1.904 percent late on Monday.

The 30-year bond was last up 1-28/32 in price to yield 2.608 percent, down from 2.703 percent late on Monday.