US Treasuries were higher and yields lower on Tuesday as any weakening from higher-than-expected inflation data seemed to be outweighed by reports of safe-haven buying as global equities tumbled.
Bond moves largely tracked US stocks as indices wavered between gains and losses before heading definitively lower. But by the close they were off their worst levels again, having led bonds through a see-saw session
Producer prices rose by less than forecast in May, but the core rate, at 0.3 per cent, was above expectations. Reactions were, however, muted as the market focused more on the equity sell-off and waited for the consumer price index on Wednesday, typically a bigger event than the wholesale price numbers.
Core CPI is forecast to have risen 0.2 per cent in May, although investors fear the rate could be higher after the two most recent readings of 0.3 per cent.
By late trade in New York, yields on two-year notes were 0.4 basis points lower at 5.018 per cent and 10-year yields were down 1.6bp at 4.967 per cent.
On Tuesday, 30-year yields briefly joined the yield curve inversion between two and 10-year yields, but at 5.019 per cent, had just nudged back into positive territory.
Eurozone government bonds also rallied as stocks slid.
As prices rose in late trading, the yield on the two-year Schatz fell 1.6bp to 3.313 per cent and the 10-year Bund yield lost 4bp to 3.862 per cent.
“European bonds continue to take their cue from weak stock markets, which are having another attack of the jitters as risk aversion continues to take a toll,” said David Brown, chief European economist at Bear Stearns.
“Stocks remain under the weather as investors continue to fret about the risk of slower growth momentum ahead, especially set against the backdrop of implied tougher rate policy coming out of the US and Europe.”
Equity weakness propped up gilts despite a pick-up in headline inflation. The yield on the two-year gilt edged down 0.7bp to 4.649 per cent while the 10-year gilt yield fell 2.8bp to 4.516 per cent.
The yield on the benchmark 10-year Japanese government bond dropped 5bp to a three-month low of 1.775 per cent, as doubts increased about whether the Bank of Japan will feel able to end its zero interest rate policy tomorrow.