Treasury yields slide amid US slowdown worries, global stock rout

TOKYO – US Treasury yields sank to fresh multi-month lows in Asia on Friday, amid building worries that the US economy is headed for a hard landing.

A steep sell-off in Asian stocks, following a tumble on Wall Street the day before, also stoked demand for Treasuries as a haven.

The 10-year Treasury yield sank as much as 3.5 basis points (bps) on Friday to reach 3.944% for the first time since early February, after tumbling as much as 14 bps overnight to breach the psychological 4% barrier.

The two-year yield dropped as much as 5.5 bps to 4.109%, the lowest since May of last year, extending Thursday’s more than 17 bps slide.

A surprise slump in US manufacturing data overnight ignited worries the Federal Reserve may be behind the curve, raising the risk of a sharp economic downturn and putting additional weight on a key monthly jobs report due later on Friday.

Trader bets for a super-sized 50-basis-point interest-rate cut at the Fed’s next policy meeting in September jumped to 27.5% from 11.8% a day earlier, according to the CME Group’s FedWatch tool.

At its policy meeting that ended on Wednesday, the Fed left rates unchanged, but Chair Jerome Powell pointed to September as a potential start to cuts.

“This pricing suggests the market is moving away from a soft-landing scenario to one where the Fed will need to take the fed funds rate below a neutral setting and to stimulate,” said Chris Weston, head of research at Pepperstone.

“Perhaps (there’s) even an element of front-loading upcoming rate cuts, which is a far more worrying sign.”

(Reporting by Kevin Buckland; Editing by Christopher Cushing)