Longer-dated US Treasury debt prices fell on Monday as government debt auctions raised supply concerns and a surprisingly strong report on the services industry revived hopes of an economic rebound later this year. A report showed the US service sector was still shrinking last month, but the pace of contraction slowed and activity was at its highest since September 2008.
The data reinforced the view that recovery was taking hold, however slowly. This supported shorter-dated debt on the notion that the Federal Reserve is likely hold rates steady for now, keeping two-year yields at one-month lows. It raised inflation risks for longer-date bonds while supply worries also weighed.
The government is bringing $73 billion worth of bonds to market this week, though the auctions kicked off on Monday with a well-received sale of Treasury Inflation-Protected Securities. "Really, the overriding factor for the market-place is supply," said Tom di Galoma, head of fixed income rates trading at Guggenheim Capital Markets LLC, a New York-based brokerage.
Benchmark 10-year Treasury notes were down 4/32 in price, yielding 3.50 percent versus 3.49 percent on Thursday. The 30-year long bond was down 18/32, yielding 4.35 percent versus Thursday's close of 4.31 percent. Bonds came back from their lows after the government's $8 billion auction of 10-year TIPS. Shorter-dated Treasury notes were higher, continuing to find support from the surprisingly weak jobs data last Thursday.
That data supported the notion the Federal Reserve will leave its near-zero interest rate policy unchanged in the foreseeable future in a bid to end the worst recession in decades. Two-year Treasury notes were up 3/32 for a yield of 0.95 percent versus 0.99 percent on Thursday.
During the session, two-year yields fell as far as 0.93 percent, their lowest since early June. Meanwhile, the Fed bought $7 billion in Treasuries maturing in five to seven years as part of its quantitative easing program to stimulate the economy. The US central bank will conduct another Treasury purchase operation on Thursday.