US yields fall as weak European data bolsters case for lower rates

NEW YORK: US Treasuries yields fell on Wednesday in line with European government debt, after weak economic data in the region added to expectations that the European Central Bank will signal easier monetary policy.

Euro zone business growth was weaker than expected in July, hampered by a deepening contraction in manufacturing, and forward-looking indicators in surveys published on Wednesday suggest conditions will get worse next month.

A recession in Germany's manufacturing sector worsened in July while French business growth also slowed unexpectedly in the month.

"Treasuries are following bunds here to lower yields," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

The weak economic figures "continue to show the concerns on global growth, and in general the concerns that the global central banks are going to have to look at in the next week with the ECB and the Fed," Lederer said.

The weaker data could prompt a more dovish response by the ECB at its meeting on Thursday, with traders pricing in an almost 50% chance of a 10 basis point cut.

The US Federal Reserve is seen as certain to cut its overnight benchmark lending rate at its July 30-31 policy meeting, with a 25-basis-point cut viewed as more likely than a 50-basis-point reduction.

Benchmark 10-year Treasury yields gained 6/32 in price to yield 2.053%, down from 2.074% on Tuesday.

US data on Wednesday also showed weakness in the manufacturing sector, with activity slowing to a near 10-year low in early July.

Yields had risen overnight after a report saying US negotiators will be heading to China to discuss trade terms boosted hopes the two countries may deescalate a trade war that has weighed on economic growth.

The White House said on Wednesday that US and Chinese negotiators The White House said on Wednesday that U.S. and Chinese negotiators will restart trade negotiations in Shanghai on Tuesday, "aimed at improving the trade relationship between the United States and China."

The Treasury Department sold $41 billion in five-year notes on Wednesday to weak demand, the second sale of $113 billion in short and intermediate-dated notes this week.

The government sold $40 billion in two-year notes to soft demand on Tuesday.

It will also sell $32 billion in seven-year notes on Thursday.