US Treasury debt prices rose for the second day in a row on Wednesday, pushing benchmark yields down to four-month lows as weaker oil prices continued to ease inflation expectations. Investors were also prompted to buy into the perceived lower risk of bonds by data showing the euro zone economy contracted in the second quarter, which fuelled worries about global economic growth.
"The euro zone contraction just figures into the broader slowdown outlook," said John Canavan, analyst at Stone & McCarthy Research Associates in Princeton, New Jersey, adding "the larger safe-haven bid has remained supportive of bonds."
Lower oil prices on Wednesday, in line with consistently weaker energy and commodity prices since July, also helped to squash any expectations that the Federal Reserve will have to raise US overnight interest rates soon to fight inflation.
Benchmark 10-year Treasury notes traded 9/32 higher in price for a yield of 3.70 percent from 3.74 percent late on Tuesday. Benchmark yields reached to as low as 3.69 percent on Wednesday, marking the lowest since May 1.
Two-year Treasury notes traded unchanged in price for a yield of 2.27 percent. Trade in bonds seems like "a continuation of yesterday where the key story was disinflationary trends. That started yesterday morning with a large break in the crude oil price reflecting a sparing of energy infrastructure by Hurricane Gustav," said David Dietze, chief investment strategist at Point View Financial Services in Summit, New Jersey.
Bond traders largely shrugged off several economic releases, including the Fed's Beige Book report on US economic activity, which acknowledged some relief from high commodity and energy prices but said economic activity has been slow across the US in recent weeks.
"The Fed is generally expected to keep interest rates on hold for quite some time, and it would take a pretty dramatic Beige Book one way or the other to change that expectation," said Stone & McCarthy's Canavan, who added that Wednesday's release did not provide that drama.
Earlier, the Commerce Department said new orders at US factories jumped by a larger-than-expected 1.3 percent in July. Five-year Treasury notes traded 4/32 higher in price for yield of 2.96 percent from 2.99 percent late on Tuesday, while the 30-year bond traded 19/32 higher for a yield of 4.32 percent from 4.36 percent.