US Treasury debt prices fell on Monday after a strong reading on the huge US service sector gave the market no evidence to support the idea that the Federal Reserve needed to stop raising interest rates.
Traders also saw an opportunity to cut prices before the Treasury auctions new supplies of five- and 10-year notes later this week, traders said.
Bonds took an early cue from overseas markets, opening lower after Asian and European bond markets were hurt by strong regional data. Selling tied to corporate bond deals expected later this week was also said to weigh on Treasuries prices.
Treasuries widened their losses when The Institute for Supply Management's survey of the nation's non-manufacturing survey came in at 58.5 for November, below October's robust reading of 60.0, but still displaying solid growth. The survey showed that new orders and employment rose in November.
"Companies are willing to hire more people because they have confidence that at least in the near future, business will be strong," said Ralph Kauffman, chairman of the ISM's Management's non-manufacturing business survey committee.
The November snapshot of the non-manufacturing sector supported the market's latest perception about the Federal Reserve policy - namely that the central bank isn't necessarily about to conclude its monetary tightening cycle.
This gloomier view has taken hold just when the Treasury is ready to auction $13.0 billion in five-year notes on Wednesday and $8.0 billion in re-opened 10-year notes on Thursday.
In late trade on Monday, benchmark 10-year Treasury notes had fallen 13/32, while their yields had risen to 4.57 percent, compared with 4.52 percent on Friday, and their highest late-day level since mid-November.
Two-year notes slipped 2/32, their yields rising to 4.47 percent versus 4.43 percent on Friday and 47 basis points above the Fed's current benchmark federal funds rate.
The Fed is widely expected to raise that fed funds rate a quarter-percentage point to 4.25 percent at its next policy meeting on December 13.
Five-year notes slipped 7/32 as their yields rose to 4.50 percent, compared with 4.45 percent on Friday.
The 30-year bond shed 25/32 to yield 4.75 percent from 4.72 percent on Friday.
While higher oil prices hurt stock prices, they did not appear to offer any balm to bonds.
Bond prices sometimes do respond positively to higher oil or natural gas prices on the reasoning that if higher gasoline or home-heating costs monopolise consumers' disposable income, there will be less money left over to create demand for consumer goods, a diminution that could slow an economy heavily dependent on consumers.
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