Investors piled into ultrasafe U.S. government bonds on Wednesday, sending the benchmark 10-year note's yield to the lowest in nearly a month.
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Traders and analysts said multiple reasons boosting demand for haven assets at the start of the fourth quarter: fresh weak manufacturing data out of the U.S. and Europe; political unrest in Hong Kong; and concerns about Ebola after the U.S. reported the first case on Tuesday.
"All these things are lining up to drive investors into haven bonds," said Jason Evans, co-founder of hedge fund NineAlpha Capital LP in New York.
In recent trading, the benchmark 10-year note was 24/32 higher, yielding 2.421%, according to Tradeweb. Yields fall as prices rise.
The yield fell to as low as 2.403%, the lowest intraday level since Sept. 5.
U.S. stocks sold off. The Dow Jones Industrial Average stock index was down by more than 1%.
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Data Wednesday raised worries over the global economic growth. The U.S. monthly manufacturing index fell to 56.6 last month. Germany's manufacturing sector showed an unexpected contraction for the first time in 15 months. The manufacturing sector in the U.K. grew at the slowest rate in 17 months in September.
Investors are grappling with the uneven pace of the global growth. Disturbance in Hong Kong has added to concerns over the slowing economy in China. The eurozone's economy is teetering on the edge of a recession. The bright spot in the developed world has been the U.S. where signs of a stronger economy set the stage for the Federal Reserve to start raising interest rates sometime next year for the first time since 2006.
The crosscurrents in the financial markets have fueled bigger swings in stocks and bonds over the past month, a break from a quieter tone earlier this year.
The 10-year note's yield at one point in September rose above 2.65% to a two-month high, driven by worries over the Fed's interest rate policy outlook. Higher interest rates make newly minted bonds more attractive to buy, diluting the value of existing bonds.
On Wednesday, the VIX index, or the fear gauge on Wall Street, rose by more than 5%.
"At this point the U.S. is the only bright spot in terms of economic growth but we are not an island nation," said Mary Ann Hurley, vice president of trading in Seattle at D.A. Davidson & Co. "The risk is whether the U.S. economy will continue to grow at a robust pace if the rest of the world falls apart."
Ms. Hurley said the 10-year Treasury yield could fall to 2.35% or even lower if upcoming data suggest the U.S. economy may not grow at a pace that fails to live up to investors expectations.
Uncertainty over the global growth could also impact the timing of the Fed's interest rate increase. Mr. Evans at NineAlpha Capital said the Fed may delay the first rate increase if growth outlook falters, and bond yields aren't going to rise significantly in this case, he said.
Not all riskier assets fell on Wednesday. Government bonds in weaker eurozone's economies rallied along with safer Treasury bonds and German government bonds.
The eurozone manufacturing data Wednesday boosted speculation that the European Central Bank needs to provide more monetary stimulus for the economy. The ECB is scheduled to hold a policy meeting Thursday. The prospect of more easy monetary policy from the ECB has encouraged investors to buy eurozone government bonds.
On Wednesday, the yield on the 10-year German government bond fell to 0.904%. The yield on the 10-year government bond in Spain slid to 2.075% and the yield on the 10-year government bond in Italy fell to 2.290%.
Germany paid record low costs to sell a 10-year bund Wednesday, offering a yield of 0.93%.
Lower yields in Germany, meanwhile, have attracted investors to buy U.S. Treasury bonds, a theme that has been persistent in 2014.
"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.
Bond yields in the U.K. also fell. The yield on the 10-year U.K. government bond declined to 2.364%.