US bond yields down on weak economic data, oil drops

US 10-YR
US 30-YR

Yields on U.S. Treasury bonds fell on Friday after construction and manufacturing data disappointed, reading below expectations, and oil fell to a post-2009 low.

Benchmark 10-year debt last yielded 2.122 percent in late afternoon trading, but fell as low as 2.10 percent. The 30-year bond rose 1-6/32 in price to yield 2.68 percent, lowest since Dec. 16.

The Institute for Supply Management's index of national factory activity fell to 55.5 for December, just shy of analysts' forecast of 57.6. The figure read 58.7 the month before. A reading above 50 indicates expansion in the manufacturing sector.

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The Commerce Department reported a decline of 0.3 percent in November U.S. construction spending, unexpectedly missing economists' predictions that spending would rise 0.3 percent.

Thin trading volumes on the day after the New Year's holiday was seen as exacerbating price moves. "On a day where there are probably not many people around, even a small decline is noteworthy," said Jim Kochan, chief fixed income strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin. Kochan added that growth remained strong despite the decline.

"It's still a very, very good reading," he said.

Official data out of China this week showed its industrial growth continued to slow in December, weighing on Asian markets.

Markit PMI data for the euro zone, out Friday, came in at 50.6, showing industrial growth in the single currency union remained "near stagnant" in December.

Falling oil prices have added to concerns about deflation, which has also sent bond yields tumbling. Brent crude touched a post-2009 low of $55.48 earlier on Friday, before rising back to $56.30. It averaged around $110 a barrel between 2011 and 2013.

Investors are next focused on the Jan. 7 release of minutes from the Federal Reserve's December meeting, when the central bank changed its vow to keep interest rates near zero for a "considerable time" to say that it would remain "patient." Traders will be watching for further clues to when the Fed is likely to begin raising rates, as well as indications over how fast and spread out rate hikes may be once the tightening begins.

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The U.S. employment report for December is also due on Jan. 9.

"People are preparing for the barrage of new issuance that will come out next week," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

—Reuters contributed to this report.