US Treasury yields rose on Monday after data showed that US factories ramped up activity in September, boosting expectations of economic growth before Friday's highly anticipated jobs report. The Institute for Supply Management (ISM) said on Monday its index of national factory activity rose to 51.5 from 49.4 the prior month, indicating that the sector is now expanding.
It comes as investors are focused on Friday's employment report for further clues on when the Federal Reserve is likely to raise interest rates. "A strong number tells the market that the Fed might actually go," said Gennadiy Goldberg, interest rate strategist at TD Securities in New York. "If the week stays like this then December might get more priced in." The odds of a rate hike this year ticked up after Monday's factory data. Traders are now pricing for a 62 percent chance of a hike in December, and a 11 percent chance of a rate increase in November, according to CME Group's FedWatch Tool.
Benchmark 10-year notes were last down 5/32 in price in price to yield 1.62 percent, up from 1.61 percent late on Friday. Treasury prices rallied after the Fed left rates unchanged at its meeting concluding on September 21, but signalled that it could still tighten monetary policy by the end of the year. Fed Chair Janet Yellen said she would expect to see an increase in the central bank's benchmark federal funds rate this year, depending on jobs market recovery and barring economic disruptions.
"The focus is going to be on employment this week," said Dan Mulholland, head of Treasuries trading at Credit Agricole in New York. Employers are expected to have added 170,000 jobs in September, according to the median estimate of 59 economists polled by Reuters. Focus will also remain on Deutsche Bank as the German bank negotiates a settlement with US authorities demanding a fine of up to $14 billion for mis-selling mortgage-backed securities. Reports that Deutsche may reach a much lower settlement with the US had sparked higher risk appetite on Friday, and reduced demand for US Treasuries, which are typically in demand for quarter-end rebalancing.