NEW YORK: Benchmark 10-year and 2-year US Treasury yields on Friday dropped to their lowest levels since early January, weighed down by weaker-than-expected US economic data that suggested the Federal Reserve will hold
interest rates steady for the rest of the year.
Expectations that the Federal Reserve will strike a dovish tone at next week's two-day policy meeting also pressured yields, analysts said.
Both 10-year and 30-year US yields have declined in seven of the last 10 sessions, reflecting a benign inflation outlook and slowing growth in the world's largest economy.
Data showed on Friday that US manufacturing output fell 0.4 percent in February, weakening for a second straight month, while factory activity in New York state was softer than expected this month with an index reading of 3.7.
Following the data, US 3- and 5-year yields briefly inverted, which could augur ill for the economy. Some analysts though said the movements between two short-dated maturities does not really offer a clear insight on the bond market's economic outlook.
"The data was broadly disappointing ... and that's why we have seen this rally continue the way it has," said Ben Jeffery, analyst at BMO Capital Markets in New York.
In afternoon trading, US 10-year prices rose, as yields fell to 2.596 percent from 2.63 percent late on Thursday. Ten-year yields fell to a more than two-month low of 2.580 percent.
US 30-year bond yields dropped to 3.023 percent , from 3.046 percent on Thursday.
At the short end of the curve, US 2-year yields slipped to 2.446 percent, compared with Thursday's 2.461 percent , after earlier dropping to 2.430 percent, the lowest since January 4.
US yields did inch higher after the better-than-expected University of Michigan consumer sentiment report, which showed an index of 97.8, higher than the consensus forecast and the previous month's reading.
With the data out of the way, investors are now bracing for a dovish statement after next week's Federal Reserve Open Market Committee meeting.
Analysts unanimously expect the FOMC to leave policy rates unchanged.
TD Securities in a research note said the market has priced in a 38 percent chance of a 25 basis-point rate cut by the end of 2019, which it believes is a overly pessimistic assessment.
"Q1 US data has been weak, but it is far from collapsing," TD said. "Further, there were a few one-off shocks in terms of the shutdown and the weather, which should unwind in the coming months."
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