Fed funds rate futures are now fully factoring in a rate cut later this year, with about an 80 per cent chance of a move priced in by September.
US benchmark 10-year Treasury yields were steady on the day on Tuesday, but above 15-month lows reached on Monday as risk assets showed signs of stabilization after two days of weakness. "Increasing amounts of negatively yielding bonds overseas has also been supportive of the US bond market".
Since when was the Federal Reserve's dovish about-face bad for markets?
Benchmark 10-year Treasury yields slid as investors remained focused on central bank dovishness globally. "Most central banks have turned dovish".
Meanwhile, European Central Bank President Mario Draghi said the ECB could further delay an interest rate hike and may look at measures to mitigate the side-effects of negative interest rates, warning that risks to growth were on the rise.
Haven demand was also spurred by some concerns in emerging markets, with the Turkish lira plunging as traders grappled with the government's curbs on trading the currency.
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The Treasury Department will sell $113 billion in coupon-bearing supply this week, including $40 billion in two-year notes on Tuesday, $41 billion in five-year notes on Wednesday and $32 billion in seven-year notes on Thursday. That's because a fall in financing costs likely sparked more people to refinance their mortgages, cutting mortgage-bond holders duration.
Benchmark U.S. 10-year notes last rose 12/32 in price to yield 2.414 percent, from 2.455 percent late on Friday.
Marty Mitchell, an independent strategist, wrote in his daily newsletter to clients, said that increasing amounts of negatively yielding bonds outside America have been supportive of the USA market and there are also haven flows into Treasuries. The yield fell as low as 2.377 percent.
China's blue-chip CSI300 bucked the trend, giving up early gains to fall 0.7 per cent, while Hong Kong's Hang Seng Index was slightly lower.
On Monday, "it is a follow through trade from last week", said Ian Lyngen, head of US rates strategy at BMO Capital Markets in NY.
Most market players agree recession fears were real but saw no clear sign of a huge slowdown, especially with interest rate rises receding.
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A closely watched segment of the U.S.
Last week, yields on the 10-year Treasury note dipped below yields on the three-month Treasury bills for the first time since August 2007.
Typically, however, the curve will chop around for some time before confirming an economic downturn.
"The US yield curve continues to invert", said Michael Every, Hong Kong-based senior Asia-Pacific strategist at Rabobank. "The tone of general risk-off sentiment will prevail for a while but not to the same extent (as on Friday)", Commerzbank strategists Ulrich Leuchtmann said, noting a recession was unlikely in the near term either in the eurozone or the United States.
There's little standing in the way of lower Treasury yields the rest of this month, according to Jim Vogel, a strategist at FTN Financial.
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