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2-year Treasury yield logs biggest one-day drop in a month after soft eurozone data

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U.S. Treasury yields and European bond yields fell sharply on Monday after investors plowed into haven assets following a raft of weak eurozone data that underscored slowing activity across the multi-country region and added to worries about global growth.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -0.86% slipped 5 basis points to 1.704%, while the 2-year note rate TMUBMUSD02Y, -0.47% fell 4.7 basis points to 1.664%, its biggest daily drop since Aug. 23. The 30-year bond yield TMUBMUSD30Y, -1.15% was down 4.7 basis points to 2.150%. Bond prices move inversely to yields.

What’s driving Treasurys?

Investors snapped up government bonds following new economic data that put the spotlight on the eurozone’s economic doldrums. The flash eurozone manufacturing purchasing managers index fell to an 83-month low of 45.6 in September, down from 47 in August.

Export powerhouse Germany saw its composite gauge, combining manufacturing and services activity, fall to 49.1. Any reading below 50 reflects a contraction in economy activity and often coincides with the onset of recessions.

Analysts said the chances of a recession in the largest economy in the eurozone is rising, after it shrunk in the second quarter of 2019.

The 10-year German government bond yield TMBMKDE-10Y, +1.05% plunged 6.3 points to negative 0.58%, close to its all-time low of negative 0.72%.

Outgoing European Central Bank President Mario Draghi said monetary policy should “remain highly accommodative for a prolonged period of time,” during testimony in front of European Parliament. This comes after the central bank had launched a broad raft of stimulus measures including the resumption of bond purchases beginning from Nov. 1.

Looking ahead, investors will gear up for a busy week of sales of short-term government paper, starting from Tuesday. The Treasury Department will auction off $113 billion of notes ranging from 2-year to 7-year maturities.

What did market participants’ say?

“Economic weakness and a new round of stimulus suggest that long rates and [European] government bond yields will see a new leg down and will eventually surpass previous record lows,” wrote analysts at ABN AMRO.

What else is on investors’ radar?

Investors got to hear from U.S. central bankers. New York Fed President John Williams said that his regional bank had moved decisively to react to a cash squeeze in overnight funding markets. This comes after the central bank drew flak from market participants for failing to act early to arrest the surge in short-term borrowing costs.

St. Louis Fed President James Bullard sugge