ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)


U.S. government bonds started the fourth quarter on a high note on Wednesday as manufacturing data added to worries over weak economic growth in the eurozone. Strong demand for U.S. government debt followed the biggest monthly selloff since December 2013. Investors shed holdings in September on concerns over the path of the Federal Reserve’s interest-rate policy.

In recent trading, the benchmark 10-year note was 16/32 higher, yielding 2.448%, according to Tradeweb. Yields fall as prices rise.

The yield fell to as low as 2.443%, the lowest level since Sept. 8.

“Investors appear to be in a nervous state,” said Kevin Giddis, head of fixed income at Raymond James in Memphis, Tenn. “They are nervous about the European economies. History has shown that when this nervousness is present, money tends to flow into the safest assets.”

The eurozone manufacturing sector barely managed to expand in September, while Germany, the region’s largest economy, showed an unexpected contraction for the first time in 15 months. In the U.K, the manufacturing sector grew at the slowest rate in 17 months in September.

The data from Europe offset a slightly better-than-expected private-sector employment report in the U.S.

Investors are grappling with uneven global growth and geopolitical risks in Ukraine and the Middle East. Investors kept a close eye on pro-democracy protests in Hong Kong amid concerns about a slowing economy in China.

The eurozone manufacturing data sent yields broadly lower in the region’s government bond market Wednesday as speculation grew that the European Central Bank needs to provide more monetary stimulus for the economy. The ECB is scheduled to hold a policy meeting Thursday. A report on Tuesday showed eurozone inflation fell to a fresh five-year low, the latest sign of alarmingly low consumer prices that is threatening the economic recovery.

The prospect of more easy monetary policy from the ECB has encouraged investors to buy eurozone government bonds. Lower yields in Germany, meanwhile, have attracted investors to buy U.S. Treasury bonds, a theme that has been persistent in 2014.

On Wednesday, the yield on the 10-year German government bond fell to 0.908%. The yield on the 10-year government bond in Spain slid to 2.074% and the yield on the 10-year government bond in Italy fell to 2.295%.

Bond yields in the U.K. also fell. The yield on the 10-year U.K. government bond declined to 2.383%.

“The rally in Treasury bonds correlates perfectly with a rally in German bunds ahead of the ECB meeting,” said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott, which has $58 billion in assets under management.

The 10-year Treasury note’s yield climbed by about 0.16 percentage points in September and at one point traded above 2.65%.

The U.S. economy has shown of gaining traction and the Fed is widely expected to raise interest rates next year for the first time since 2006. Higher interest rates make newly minted bonds more attractive to buy, diluting the value of existing bonds.

Bond investors will zero in on Friday’s nonfarm jobs report, one of the key data that influence the Federal Reserve’s interest-rate outlook. Economists expect the economy to have added 215,000 new jobs in September, compared with 142,000 in August. Traders say a strong report could send bond yields higher as it could raise concerns that the Fed may raise its official interest rates sooner than investors expect.