By Sunny Oh

Treasury yields struggled for direction Monday as stocks also swung between gains and losses amid signs that paint a mostly dim outlook for the global economy.

The 2-year note yield rose half a basis point to 2.912%, marking its highest levels in a decade. The 10-year Treasury note yield was mostly flat at 3.196%, while the 30-year bond yield was up 0.3 basis point to 3.383%, near its more than four-year high of 3.401%. Bond prices move in the opposite direction of yields.

Stocks were mixed throughout Monday's session, with the S&P 500 and Dow Jones Industrial Average both down around 0.3%. Investors have grown nervous about global markets due to concerns of weak global growth and whether U.S. companies can continue to post strong earnings expansion in the coming months. A poll from Reuters showed economists' outlook for global growth in 2019 had started to dim (https://www.reuters.com/article/us-global-economy-poll/global-growth-outlook-for-2019-dims-for-first-time-reuters-polls-idUSKCN1MW00F).

This was despite the biggest rally in Chinese equities (http://www.marketwatch.com/story/stock-futures-point-slightly-higher-as-china-equities-rise-earnings-in-focus-2018-10-22)in three years after regulators worked to reassure investors last week. China's central bank and government pledged to support the economy after third-quarter growth hit a nine-year low of 6.5%. The Shanghai Composite finished higher 4.1% on Monday.

Bond yields tend to move in tandem with stocks as government bonds have traditionally been seen as a hedge against equity weakness. But recently the relationship has been somewhat challenged as yields start to reach a threshold that could endanger the U.S.'s robust economic momentum.

See: It's the surge in 'real yields' that could spell danger for stocks (http://www.marketwatch.com/story/its-the-surge-in-real-yields-that-could-spell-danger-for-stocks-as-bond-markets-swoon-2018-10-09)

Looking ahead, investors will digest around $108 billion of short-dated government paper this week. Analysts say the burgeoning supply hasn't overwhelmed appetite for long-term Treasurys, but may have contributed to the steady rise of short-dated yields which gathered steam in recent weeks this year. Coupled with the Federal Reserve's rate-hike trajectory, short-end Treasurys have struggled to take down the bump in debt supply.

"Valuations have started to show some concerns about supply over and above the influence of higher rates due to the Fed cycle," wrote Jim Vogel, interest-rate strategist at FTN Financial.

Meanwhile, a saga surrounding Italy's budget continued to capture the attention of market participants. Moody's Investors Service downgraded Italy's debt rating to one notch above 'junk'. Nonetheless, Italian government paper rallied as investors fixated on the accompanying "stable" outlook, a sign that a further downgrade wouldn't happen soon. As a member of the EU, Rome's budget must comply with the trade group's rules for inclusion in the bloc and Italy's current draft proposal risks creating conflict.

The 10-year Italian government bond yield slipped 9.2 basis points to 3.471%, according to Tradeweb data.

Read: Here's why Italian bonds rallied after Moody's downgrade (http://www.marketwatch.com/story/heres-why-italian-bonds-rallied-after-moodys-downgrade-2018-10-22)

(END) Dow Jones Newswires

October 22, 2018 16:00 ET (20:00 GMT)

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