Treasury yields fall

US benchmark Treasury yields fell to two-month lows on Monday after the government saw strong demand for a five-year note auction, and as market participants waited on data that will culminate on Friday with the August employment report. Wall Street's top 23 firms took a record low share of five-year government notes, while direct bidders bought their biggest stake since July 2014.
"The five year auction was very strong, clearly there is demand in the belly of the curve," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York. The government earlier on Monday awarded fund managers, foreign central banks and other indirect bidders the lowest amount of two-year government notes at an auction since December.
The US will also sell $28 billion in seven-year notes on Tuesday. Benchmark 10-year notes gained 5/32 in price to yield 2.155 percent, the lowest since June 27. Traders said volumes were light before next Monday's Labor Day holiday. Friday's employment report is expected to show solid jobs gains though wage data will be the main focus for any uptick in inflation.
"If we got a crazy average hourly earnings number, that would jolt the market, but we're not expecting that to happen," said Praveen Korapaty, head of global interest rate strategy at Credit Suisse in New York. The median estimate of 60 economists polled by Reuters shows employers added 182,000 jobs in August.
Other releases this week include second-quarter gross domestic product data on Wednesday and personal income figures on Thursday. The prospect of a government shutdown and even a default is also in focus as lawmakers face a deadline to raise the US debt ceiling by late September or run out of funds.
"The most interesting thing will be what's happening on the legislative side in the US," said Korapaty. "It's not clear to me that the debt ceiling legislation will have smooth sailing, and certainly the odds of a government shutdown are higher than what markets seem to be worried about at this point." Yields on Treasury bills that are due on October 5 were elevated on Monday at 1.10 percent, but below the high of 1.24 percent reached on August 10.