US Treasuries prices slipped on Wednesday as data showing an expected slight fall in euro zone manufacturing growth reduced anxiety about global growth that was briefly heightened by a dismal reading on China's economy. Euro zone business growth slowed this month, a survey showed. Markit's Composite Flash Purchasing Managers' Index came in at 53.9, down from 54.3 in August. A Reuters poll had predicted a dip to 54.1.
The market decline was limited on persistent concerns whether slowing Chinese economy would hurt global growth. This will likely stem any sharp losses in Treasuries in the near term, analysts said. "It's not going to trade in that big of a band here," said Dan Heckman, senior fixed income strategist at US Bank Wealth Management in Kansas City, Missouri.
With medium-dated yields hovering near four-week lows, the US Treasury managed to sell $35 billion of new five-year Treasuries, part of this week's $90 billion in fixed-rate debt supply, to strong investor demand. However, the Treasury, saw record low demand in the sale of $13 billion of two-year floating-rate notes. Earlier, Treasuries prices rose on data that showed China's factory sector contracted at its fastest pace in 6-1/2 years in September before they reversed course on data on the pullback in manufacturing activity in the euro zone.
The US bond market was on track for another rocky session following two days of wild swings. It tumbled on Monday on heavy corporate bond supply and remarks from several top Federal Reserve officials who suggested a US interest rate increase by year-end is on the table. They rebounded sharply on Tuesday on renewed worries about the global economy and a scandal that hit German automaker Volkswagen and the rest of the European stock market. Benchmark 10-year Treasuries were down 7/32 in price for a yield of 2.151 percent, up 2 basis points from Tuesday, while the 30-year bond was down 9/32 to yield 2.944 percent, up 1 basis point on the day.
The German 10-year Bund yield ended unchanged at 0.600 percent after trading over 2 basis points higher as European Central Bank President Mario Draghi signalled it was too early to decide to expand the ECB's 1.1 trillion-euro bond-purchase program while acknowledging slower emerging market growth, a stronger euro and weaker commodity prices have put downside risks on the euro zone economy. Draghi was testifying before the European Parliament's Committee on Economic and Monetary Affairs.