U.S. Treasury yields fell on Monday as fears that property developer China Evergrande Group might default deepened a global equity sell-off and sent investors scurrying to shelter in safe-haven bonds. Treasury prices rallied, pushing yields on the benchmark 10-year note down 6 basis points to 1.306% at one point, before shedding some price gains to trade at 1.3226%.
Evergrande Shares Plunge Nearly 20%
Shares in Evergrande plunged as much as 19% to more than 11-year lows, raising concerns about the health of China's economy and its potential impact on other markets. Evergrande has been scrambling to raise funds to pay its lenders, suppliers and investors, with regulators warning that its $305 billion of liabilities could spark broader risks to the financial system if not stabilized.
But the severity of the risk Evergrande poses may be overblown as many people outside of China were unfamiliar with the company's problems before last week, said Tom Simons, money market economist at Jefferies LLC. "Evergrande, frankly, to me feels more like a topic of conservation than a salient market risk," Simons said. "At the end of the day, China is not going to allow this to spiral out of control."
The 30-year Treasury bond yield dropped 4.8 basis points to 1.8605%. The 10-year yield on Friday hit two-month highs as investors anticipated major central banks would start providing clues about tapering during a busy week for policy-setters, including the Federal Reserve's two-day meeting starting Tuesday.
Analysts expect the Fed to open the door to reducing its monthly bond purchases while tying any actual change to U.S. job growth. "In order to get a November announcement, there probably needs to be a hint of that in the statement that’s coming out this week," Simons said. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, fell 1.0 basis point to 0.2158%.
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