TREASURIES-U.S. Treasury yields fall on fading risk sentiment

BY Reuters | TREASURY | 09/20/21 05:19 AM EDT

By Stefano Rebaudo U.S. government bond yields fell in early London trade on Monday, as risk sentiment weakened across global financial markets after default fears grew around Chinese property developer Evergrande.

Shares in Evergrande slid as much as 19% to more than 11-year lows, adding to growing concerns about the health of China's economy.

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 stabilised.

Unease in world share markets boosted demand for safe-haven debt with 10-year Treasury yields last down 3 basis points to 1.34%. The 30-year Treasury bond yield dropped 4 bps to 1.87%.

The 10-year Treasury yield touched a two-month high on Friday, as investors feared major central banks would start giving cues about tapering ahead of a busy week of policy meetings, which includes the Federal Reserve.

Analysts expect the Fed to open the door to reducing its monthly bond purchases while tying any actual change to U.S. job growth.

"The gloomy mood has extended into trading to start this week in Asia, with the Hang Seng index in Hong Kong down heavily overnight, while the combination of a firmer U.S. dollar and U.S. Treasury yields near the top of the range is piling on the pressure on sentiment ahead of a possibly pivotal FOMC meeting this Wednesday," Saxo Bank's Chief Investment Officer, Steen Jakobsen, said in a note. (Reporting by Stefano Rebaudo, editing by Dhara Ranasinghe)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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