Government debt yields reversed an early climb after a report on manufacturing activity in the U.S. showed the sector contracted again.
Yields swooned after the Institute for Supply Management showed that manufacturing activity weakened to its lowest level in more than 10 years in September. The ISM said Tuesday its U.S. manufacturing index fell to 47.8 in September, the lowest gauge on activity since June 2009.
That follows an August read of 49.1, when the index contracted for the first time since August 2016. Readings above 50 represent an expansion in manufacturing activity while those under 50 represent a contraction.
The yield on the benchmark 10-year Treasury note reversed a 5-basis-point climb and fell 5 basis points to 1.63%, while the yield on the 30-year Treasury bond sank to 2.097%.
"We have now tariffed our way into a manufacturing recession in the US and globally," Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote in a note.
"What's the strategy now? It better be more than the Chinese buying more soybeans because if it doesn't include strong provisions on defending US IP, than what was the point of this whole thing," Boockvar asked.
Yields at first rose on Tuesday after a shortfall in appetite for Tokyo's debt spurred a broader sell-off in global fixed income, sending yields in Europe and the U.S. higher and prices lower.
Investors pointed to the Bank of Japan's recent decision to cut its bond buying as well as an announcement that the Government Pension Investment Fund is moving to purchase more foreign debt. The bid-to-cover ratio, an indicator of demand at bond auctions, came in at 3.42, the lowest since 2016.
White House officials on Monday denied reports the Trump administration is considering limiting U.S. investment in China, with trade advisor Peter Navarro telling CNBC Monday that the reports were "fake news."
The comments have restored some calm for investors, after reports Friday indicated that the White House was in the early stages of weighing restrictions on investment which could go as far as delisting Chinese stocks from U.S. exchanges.
U.S. and Chinese trade officials are due to resume talks this month in a bid to reach a consensus in the protracted dispute between the world's two largest economies.
Investors are also monitoring an impeachment inquiry into President Trump, with the U.S. House Intelligence Committee seeking access to the president's calls with Russian President Vladimir Putin and other world leaders, citing national security concerns. The Committee on Monday issued a subpoena to Trump's personal lawyer, Rudy Giuliani.
On the data front, ISM manufacturing PMI (purchasing managers' index) figures for September are set for release at 10:00 a.m. ET.