July 24, 2019 / 6:43 PM / 2 months ago

TREASURIES-U.S. yields fall as weak European data bolsters case for lower rates

 (Adds U.S. data, auction results, updates prices)
    * European business growth weaker than expected
    * U.S.-China to restart trade talks on Tuesday
    * Weak demand for $41 billion five-year note auction

    By Karen Brettell
    NEW YORK, July 24 - U.S. Treasuries yields fell on Wednesday
in line with European government debt, after weak economic data
in the region added to expectations that the European Central
Bank will signal easier monetary policy.
    Euro zone business growth was weaker than expected in July,
hampered by a deepening contraction in manufacturing, and
forward-looking indicators in surveys published on Wednesday
suggest conditions will get worse next month.             
    A recession in Germany's manufacturing sector worsened in
July while French business growth also slowed unexpectedly in
the month.                          
    "Treasuries are following bunds here to lower yields," said
Justin Lederer, an interest rate strategist at Cantor Fitzgerald
in New York.
    The weak economic figures "continue to show the concerns on
global growth, and in general the concerns that the global
central banks are going to have to look at in the next week with
the ECB and the Fed," Lederer said.
    The weaker data could prompt a more dovish response by the
ECB at its meeting on Thursday, with traders pricing in an
almost 50% chance of a 10 basis point cut.           
    The U.S. Federal Reserve is seen as certain to cut its
overnight benchmark lending rate at its July 30-31 policy
meeting, with a 25-basis-point cut viewed as more likely than a
50-basis-point reduction.
    Benchmark 10-year Treasury yields             gained 6/32 in
price to yield 2.053%, down from 2.074% on Tuesday.
    U.S. data on Wednesday also showed weakness in the
manufacturing sector, with activity slowing to a near 10-year
low in early July.             
    Yields had risen overnight after a report saying U.S.
negotiators will be heading to China to discuss trade terms
boosted hopes the two countries may deescalate a trade war that
has weighed on economic growth.
    The White House said on Wednesday that U.S. and Chinese
negotiators will restart trade negotiations in Shanghai on
Tuesday, "aimed at improving the trade relationship between the
United States and China."              
    The Treasury Department sold $41 billion in five-year notes
on Wednesday to weak demand, the second sale of $113 billion in
short and intermediate-dated notes this week.             
    The government sold $40 billion in two-year notes to soft
demand on Tuesday.                         
    It will also sell $32 billion in seven-year notes on

 (Editing by Bernadette Baum)
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