US Treasury yields dropped on Monday after New York manufacturing data disappointed and on concerns that Greece might default on loans and be ejected from the European currency after talks between the nation and its creditors collapsed. Manufacturing in New York State slowed in June, dropping to its weakest level in more than two years as new orders fell, according to a New York Federal Reserve survey.
The New York Fed's Empire State general business conditions index fell to its lowest level since January 2013. "Even though Empire is lower-tier (data), considering it is one of the first June releases, it has some importance," said Thomas Simons, a money market economist at Jefferies in New York.
US industrial production also fell unexpectedly in May, bucking signs of an acceleration in the broader economy, as a strong dollar and energy spending cuts continued to weigh on manufacturing and mining output. Benchmark 10-year notes were last up 11/32 in price to yield 2.36 percent, down from 2.39 percent late on Friday. The yields have fallen from 2.50 percent on Thursday, the highest since September 30.
Bond prices gained earlier on Monday after Germany's European Union commissioner said it was time to prepare for a "state of emergency." Athens now has just two weeks to find a way out of the impasse before it faces a 1.6 billion euro bill due to the International Monetary Fund. That might leave it out of cash, unable to borrow and cast out of the single currency.
Treasury prices briefly turned negative on Monday afternoon as stocks pared losses and as dealers prepared for new corporate debt supply. Concerns about Greece delayed some of that issuance on Monday. The next major US focus will be this week's two-day Federal Reserve meeting, which concludes on Wednesday. Stronger-than-expected job gains in May and an uptick in wage inflation has increased speculation that the Fed may begin raising interest rates in September. Disappointing data before the release of the May jobs report had led many investors to push back expectations of a hike until December, or later.