US Treasuries prices rose on Tuesday as lingering worries about the global economy triggered a selloff in stock and commodity markets worldwide and revived safe-haven demand for lower-risk government debt. The bond market recovered Monday's losses, which stemmed from competition from higher-yielding corporate bond supply and several top US Federal Reserve officials' suggestions that a rate increase by year-end is on the table.
A nearly 20 percent drop in the share price of Volkswagen weighed on the European stock market after the German carmaker admitted to cheating on US vehicles emissions tests. The plunge in European auto shares followed Monday's losses in biotech stocks due to US Democratic presidential candidate Hillary Clinton statements that she would announce a plan to stop "price gouging" for specialty drugs.
The weakness in these sectors, together with nagging worries about China's economy, rekindled selling in stocks, commodities and other risky assets, investors said. "The market is skittish," said Jim Caron, portfolio manager at Morgan Stanley Wealth Management in New York. "When you see major stock sectors in the US and European falling, who wants risk in this environment?"
Renewed appetite for Treasuries stoked some bids at the $26 billion auction of new two-year notes on Tuesday, part of this week's sale of $90 billion in fixed-rate government debt. Overall demand for the latest two-year supply, however, was mediocre, with the Treasury paying the highest yield on them since December. The Treasury will sell $35 billion of five-year notes on Wednesday and $29 billion of seven-year debt on Thursday.
Corporate bond supply was less of a negative factor for the Treasuries market on Tuesday. On Monday, companies raised $15.75 billion in the US investment-grade bond market, part of the $25 billion to $30 billion expected for sale this week, said Thomson Reuters unit IFR. Benchmark 10-year Treasuries notes were up 24/32 in price, yielding 2.127 percent, down 9 basis points from Monday, while the 30-year bond was up 1-30/32 points in price to yield 2.935 percent, down 10 basis points on the day.
Wall Street was in the red, with the Standard & Poor's 500 index losing 1.6 percent in late trading. Worries about global demand sparked selling in the oil market. US crude futures settled down 1.8 percent at $45.83 a barrel. Copper prices fell 3.6 percent to three-week lows on jitters about economic growth and demand in top consumer China.