Yields fall as tumbling stocks prompt safety buying

NEW YORK: Benchmark US Treasury yields fell to their lowest in almost three weeks on Tuesday as tumbling equity markets worldwide fed investor demand for low-risk debt.

China's main stock indexes resumed a downward spiral as investors remained pessimistic about economic prospects and risks posed by shares pledged for loans.

"Markets are getting a little bit nervous about China in general and that's weighing on equities" said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. "Rate markets are starting to notice that there's a little bit of uncertainty."

Disappointing earnings from industrial bellwethers Caterpillar and 3M added to equity weakness.

Tumbling oil prices, which fell to two-month lows after Saudi Arabia said it could supply more crude quickly if needed, added to demand for Treasuries.

"There is also a little bit of a bid in the Treasuries because of the weakness of crude oil," said Lou Brien, a market strategist at DRW Trading in Chicago.

Equity volatility was also seen as raising some concern that stocks and the economy may not be as strong as previously thought, which could derail the Federal Reserve from being as aggressive as it has signaled in raising rates.

"There might be some rethinking or a relook at how strong the stock market is and whether that's going to cause the Fed to take a step back," Brien said.

That comes even as some investors fear that inflation pressures are on the rise.

Atlanta Fed President Raphael Bostic said on Tuesday that business contacts are indicating that they are starting to pass through the costs of trade tariffs.

Benchmark 10-year notes gained 14/32 in price to yield 3.143 percent, after falling to 3.11 percent, the lowest yield since Oct. 3. The yield curve between two-year and 10-year notes flattened to 25 basis points, also the lowest since Oct. 3.

The perceived chances of a December rate increase dropped to 73 percent from 81 percent on Monday, according to the CME Group's FedWatch Tool.

The Treasury Department sold $38 billion in two-year notes on Tuesday to solid demand, the first sale of debt totaling $108 billion in coupon-bearing supply this week.

The notes sold at a high yield of 2.88 percent, the highest since 2008.

The Treasury will also sell $39 billion in five-year notes on Wednesday and $31 billion in seven-year notes on Thursday.