US Treasury yields slid on Tuesday, tracking moves in UK and European bonds, as recent moves by the British government to stabilize its bond market have eased a bit of market anxiety that has led to some short-covering.
US benchmark 10-year yields fell for the first time in four days. They were last down nearly 1.2 basis points (bps), at 4% <US10YT=RR>.
The 10-year gilt yield also fell about four bps to 3.935% <GB10YT=RR>, after earlier rising after the Bank of England said it had not decided to delay the start of its "quantitative tightening" sales of gilts again. The BoE said the Financial Times report that said such a move was likely was inaccurate.
Yields on 10-year German bunds likewise fell on Tuesday, down 3.2 bps at 2.238% <DE10YT=RR>.
"All the European markets this morning were higher in yield and we have seen a reversal on that this morning," said Tom di Galoma, managing director, Seaport Global in Greenwich, Connecticut.
"At one point, gilts and Bunds were six to seven basis higher and they are flat on the day right now. Think that's what really driving Treasuries," he added.
The yield on the 30-year Treasury bond <US30YT=RR> was up 2.2 basis points to 4.037%.
A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes <US2US10=RR>, seen as an indicator of economic expectations, remained inverted at -42.9 basis points.
The two-year <US2YT=RR> US Treasury yield, which reflects interest rate expectations, was down 3 basis points at 4.427%.
Bond investors overall remained concerned about illiquidity in the government fixed income market, prompting the Treasury department to ask primary dealers whether a buyback of the older off-the run Treasuries would be an appropriate solution.
"The idea is to buy older securities and issue bills to pay for the purchases," said Scott Skyrm, executive vice president in fixed income and repo at Curvature Securities.
"Pretty good in theory, except decreasing the amount outstanding of older issues also makes them less liquid."
US data on Tuesday were mixed, and the Treasury market showed little reaction. A report showing confidence among US single-family homebuilders fell for the 10th straight month in October amid soaring mortgage rates and bottlenecks for building materials.
The National Association of Home Builders/Wells Fargo Housing Market index dropped eight points to 38 this month. With the exception of the short-lived plunge during the spring of 2020 when the country locked down during the first wave of Covid-19, this was the lowest reading since August 2012.
On the other hand, US Manufacturing output rose 0.4% last month, keeping pace with an upwardly revised 0.4% gain in August. Economists polled by Reuters had forecast factory production would rise 0.2%. Output increased 4.7% from a year earlier.