By Min Zeng 

Investors sought safety in U.S. government bonds Tuesday after downbeat manufacturing indicators in both the U.S. and China softened, adding to anxiety over the global growth outlook.

In recent trading, the yield on the benchmark 10-year note was 2.167%, compared with 2.204% on Monday, according to Tradeweb. Yields fall as prices rise.

Global stocks and crude oil prices sold off after China's official manufacturing purchasing managers index for August fell to 49.7 from 50.0 in July, marking its lowest level since August 2012.

In the U.S., the manufacturing index fell to 51.1 in August from 52.7 in July. A number below 50.0 implies a contraction. South Korea said exports posted their sharpest fall in six years in August as shipments slumped to China, the country's largest export destination.

The move in Treasury bonds "is a response to global equity declines and risk aversion," said Russ Certo, managing director of rates trading at Brean Capital LLC in New York.

Aaron Kohli, interest rate strategist at BMO Capital Markets, said after the selling Monday amid a big surge in crude oil prices, "bond yields look attractive to value investors."

Worries over the health of China's economy have been front and center in the global financial markets in recent weeks, which have rattled global stocks, commodities and emerging-market currencies. Investors are concerned that the slowdown of the world's second-largest economy may be much more severe than many anticipate, which would ripple into global trade and investments.

The global uncertainty is complicating the Federal Reserve's plan for raising short-term interest rates for the first time since 2006. Data released in recent weeks show the U.S. economy holding up and continuing to be a bright spot in the sluggish world economy. Fed officials signaled a rate increase remains on the table for its Sept. 16-17 policy meeting. But many investors say the central bank should wait longer to tighten monetary policy amid rising volatility in the global markets.

"The continued cracks in stock markets as well as weakening global economic data are making it harder to price in a September hike," said Mr. Kohli of BMO Capital Markets.

The crosscurrents have been whipsawing the bond market. Volatile trading in riskier markets and a muddy global growth picture raise the appeal to hold ultrasafe Treasury bonds. Yet higher interest rates from the Fed would shrink the value of outstanding bonds as they will make newly issued bonds more attractive for buyers.

The Fed's ultraloose monetary policy since the financial crisis has helped push up prices of Treasury debt and many other asset classes. Concerns have been growing that valuations from stocks to bonds have been stretched. Now with the central bank on pace to shift gear, investors are concerned whether these financial assets may hold up.

Investors put $1.68 billion net cash in U.S.-based mutual funds and exchange-traded funds targeting the Treasury bond market for the week that ended Aug 26, according to fund tracking company Lipper. It marks the biggest one-week inflow since April. Through Aug 26, the fund group has attracted a net cash inflow of $14.45 billion, on track to be the biggest annual inflow since 2009.

Many investors have been selling short-term notes and migrating into long-term bonds this year because yields on short-term debt are highly sensitive to changes in the Fed's interest-rate policy outlook.

The yield on the two-year Treasury note was 0.716%, compared with 0.739% Monday, which was the highest closing level since Dec. 24.

A report last week showed a 3.7% growth rate for the U.S. economy between April and June, which was stronger than the 2.3% initially reported by the government. But some fund managers are concerned that a premature rate-increase campaign by the Fed would threaten the growth momentum in the U.S., a case that would boost the appeal of long-term bonds.

Global uncertainties and contained inflation threats have sent the 10-year Treasury yield lower after hitting this year's peak of 2.5% in June. The yield is a bedrock of global finance and a main gauge of investors' sentiment toward growth and inflation.

Write to Min Zeng at min.zeng@wsj.com

(END) Dow Jones Newswires

September 01, 2015 10:40 ET (14:40 GMT)