US bonds rise amid data; central banks eyed

U.S. sovereign bonds rose on Tuesday, as investors digested data and kept an eye on major central banks.

The benchmark 10-year Treasury note slipped to yield 2.1553 percent, having closed at 2.218 percent as bond yields and prices move inversely.

Yields on 30-year Treasury bonds fell to 2.9178 percent from a close of 2.990 percent.

Treasury yields

U.S. Treasurys

German bunds — another safe haven — fell, while the dollar index, which tracks the greenback against a basket of other currencies, briefly declined to below 100.

This came after Asian stocks rallied, despite further weak Chinese factory data. Both the Chinese official and the Caixin/Markit purchasing managers' indexes (PMIs) showed that manufacturing activity decreased once again in November.

The Chinese Shanghai Composite index closed 0.4 percent higher after the news, while the Japanese Nikkei closed up 1.4 percent, topping 20,000 for the first time since August. Japanese 10-year sovereign notes traded narrowly higher.

Overnight, the International Monetary Fund officially stated that the yuan would enter its Special Drawing Rights (SDR) basket in October 1, 2016, making it a reserve currency alongside the U.S. dollar, euro, pound sterling and yen. The yuan will make up 10.92 percent of the basket.

In the euro zone, manufacturing PMI for November was confirmed at 52.8. However, the U.K.'s manufacturing PMI came in weaker than expected, at 52.7, showing declining growth in the sector.

U.K. Gilts traded lower after the news.

Gilt yields

U.K. Government Bonds (GILT)

In addition, euro zone average unemployment for October was reported at 10.7 percent, down from 10.8 percent in September and below expectations.

Investors were focused on two crucial data due later in the week, before the Federal Open Market Committee meets in mid-December. On Thursday, the European Central Bank (ECB) will announce its monetary policy decision and on Friday, the U.S. November non-farm payrolls are out.

The ECB is expected to expand its quantitative easing program, while the Federal Reserve is seen raising interest rates, in what would be an historic divergence in policy by two major central banks.

On the data front, the ISM manufacturing index reading for November came in at 48.6, below the expected 50.5. October construction spending rose 1 percent, above the expected 0.6 percent increase.

The U.S. auto sales rate in November was 18.2 million, up from 17.2 million a year ago.

Chicago Fed President Charles Evans also spoke Tuesday, saying he favored a later interest rate hike and a gradual pace of increases.

A pedestrian walks in front of a share prices board showing the numbers on the Nikkei 225 at the Tokyo Stock Exchange in Tokyo.
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Euro zone unemployment drops: More for Draghi to mull
China's manufacturing still contracting in November but service activities climb
SDR inclusion to help China lure trillion-dollar inflows

— By CNBC's Katy Barnato. Follow her on Twitter @KatyBarnato.