US Treasury prices dip

US Treasury debt prices eased slightly on Monday as a drop in the cost of oil to a two-month low appeared to clear the way for strong US economic growth in the fourth quarter. Preventing further losses was speculation among some traders that minutes from the Federal Reserve's September meeting suggested the central bank was willing to pause in its interest rate hiking campaign at some point.
But bond bears argued that while policymakers did link the probability of further rate increases to the strength of economic data, a solid stream of figures so far this month lessened the chances that the Fed might take a break.
"The Fed is likely to raise rates again in December, unless the November data are unusually soft," said David Wyss, chief economist at Standard & Poor's.
Fed Board Governor Mark Olson implied as much in a speech on Monday. He said US interest rates still needed to rise further to reach a level consistent with a sustained, noninflationary economic expansion. Just how much inflation is in the pipeline so far in this recovery would become clear on Wednesday with the release of the consumer price report for October. Expectations are that rising energy costs will drive a large 0.4 percent rise in the headline index.
However, stripping out food and energy, the core index is seen rising only 0.1 percent. Such a result would reassure fixed-income investors that inflation was still under control, giving the Fed room to be measured in taking rates higher.
By the afternoon, oil had come back from its lows of the day, allowing bonds to do the same. The benchmark 10-year note was down 1/32 for a yield of 4.19 percent, essentially flat from Friday.
Early economic data held little sway over the market. The New York Federal Reserve measure of business activity ticked up to 19.8 in November from 17.4 in October, in line with market forecasts.
Some components like new orders and employment eased enough to give the market a brief lift but traders were taking more of a cue from steady stocks and softer oil.
Two-year notes were down 2/32 for a yield of 2.87 percent, matching a four-month high hit last week, from 2.83 percent on Friday.