US Treasury debt prices slid on Monday as investors took profits on gains fuelled by weak Japanese economic data, ahead of the release this week of the minutes of the latest Federal Reserve meeting. Market participants expect the Fed minutes to show optimism about the US economy that should keep the US central bank on track to raise interest rates sometime next year.
"Treasuries have been strong all year and we did see some buying after Japan's GDP data," said Aaron Kohli, interest rate strategist at BNP Paribas in New York. "But we have sort of come off the low in yields because we have the Fed minutes coming up. There's really little scope for the Fed to be dovish given the run of pretty solid US data."
US industrial production for October was weaker than expected, falling 0.1 percent, but the report was decent compared with Japan's gross domestic product data, which fell unexpectedly by an annualised 1.6 percent in the July-September quarter. That followed a 7.3 percent contraction in the previous quarter, caused by a rise in Japan's national sales tax, and ran counter to economists' forecasts for a 2.1 percent rebound.
"Overall, the US economy is doing so much better than the rest of the world," Kohli said. Treasuries also sold off after European Central Bank President Mario Draghi said on Monday the central bank was willing to purchase more bonds to stimulate a sluggish euro zone economy. That increased the market's appetite for risk and prompted a sell-off in German Bunds, which spilled over to the US Treasury market.
"We saw a sell-off mainly on Draghi," said Justin Lederer, Treasury analyst at Cantor Fitzgerald in New York. (German) Bunds sold off and we followed behind, just giving up the gains on Friday. We really just found the range the last few weeks." In late trading, the benchmark 10-year US Treasury notes were last down 5/32 in price to yield 2.33 percent from 2.32 percent from late Friday. Five-year notes were down 3/32 to yield 1.62 percent. US 30-year Treasury bonds were down 10/32 to yield 3.06 percent, from a yield of 3.05 percent late Friday.
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