TREASURIES-US yields slip as traders watch Europe and await PMI data

BY Reuters | ECONOMIC | 06/21/24 09:36 AM EDT

By Alden Bentley

June 21 (Reuters) - U.S. Treasury yields slipped early Friday, seeking direction as recent data pointing to cooling growth and labor markets offset the specter of more supply next week, while traders took what cues there were from weakness in European rates.

The main data confronting the U.S. bond market Friday is manufacturing and services sector surveys at 0945 ET/1345 GMT.

Euro zone government bond yields dropped on Friday, after economic survey data for those nations came in weaker than expected, supporting expectations for policy rate cuts.

Weak demand dragged down France's business activity as the country heads into a snap parliamentary election, while an upturn in Germany slowed in June.

"We are following European rates this morning," said Gennadiy Goldberg, head U.S. rates strategist at TD Securities in New York. "You've seen a bit of a risk-off move in Europe with weaker French PMI data. That pushed French yields lower but pushed Germany a lot lower."

The yield on benchmark U.S. 10-year notes was off 2.4 basis points from late Thursday at 4.23%. The 30-year bond yield fell 1.7 basis points to 4.376% and the 2-year note yield, which typically moves in step with interest rate expectations, fell 2.4 basis points to 4.7045%.

The U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as a barometer of future economic growth, was at a negative 47.4 basis points, little changed from late Thursday.

S&P Global's flash June manufacturing PMI is forecast by economists polled by Reuters to come in at 51.0, slightly below May's 51.3 reading. The services PMI is seen at 53.7, down from 54.8.

This week brought retail sales, housing and unemployment claims data that pointed to an economy that is coming off the boil while labor market conditions have slackened, all good news for the Fed as it manages inflation that has yet to fall back in the range of its 2% target.

Fed funds futures put the chances of easing in September at 64%, little changed from late Thursday, according to LSEG's calculations. The market is also pricing one to two rate cuts of 25 bps each this year.

Investors are also looking ahead to next week's auction of about $183 billion in U.S. two-, five- and seven-year Treasury notes. (Reporting by Alden Bentley; Editing by Chizu Nomiyama)

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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