U.S. Treasuries yields rose on Monday as investors took a cautious stance ahead of a heavy week of data, culminating in Friday's key November employment report, which will be scoured for signals about the Federal Reserve's future decisions.
Stronger-than-expected manufacturing in the United States and abroad spurred selling in U.S. government debt as some traders reconsidered how soon the U.S. central bank might dial back its bond purchases, currently at $85 billion a month, if the economy grows further, albeit at a sub-par pace.
"The clock is ticking," said Eric Green, global head of rates and currency research and strategy with TD Securities in New York. "The sentiment is that we are closer to tapering than further away."
Monday's yield rise followed a weak November for Treasuries which recorded a 0.33 percent monthly loss as data showed U.S. economic growth was not derailed by the 16-day government shutdown in October, according to an index compiled by Barclays.
The Fed is now seen by most as likely to begin reducing bond purchases at its March meeting. Some think that could be brought forward to January if domestic employers continue to add workers at 200,000 a month as reported in October. Some are even speculating that the Fed could move as soon as this month.
"The risk for the market is a strong number which will bring the 'tapering talk' front and center," said Chris Harms, portfolio manager and co-head of the Relative Return team at Loomis, Sayles & Co. in Boston.
Investors have often become anxious heading into a payrolls report, seeing a risk that a large jobs number could be the spark that starts the Fed pullback.
"It's all defense into Friday's number," said Tom Tucci, head of Treasuries trading at CIBC in New York.
Tucci said it is more likely the U.S. central bank will provide more guidance over how it plans to hold interest rates low for some time. "I think what they want to do is outline a plan, reinforce the lower (rates) for longer with the idea that that's going to drive a foundation in the market that won't allow rates to move up too dramatically," he said.
Benchmark 10-year notes were last down 17/32 in price to yield 2.80 percent, up 6 basis points from late on Friday. The 10-year yield was 2 basis points short of the two-month high set more than a week ago.
Thirty-year bonds fell 29/32 in price to yield 3.860 percent, up 5 basis points from Friday.
Treasuries futures also experienced heavy selling with two block trades of 10-year T-notes totaling 26,600 contracts, according to data from the CME Group.
Treasuries prices fell in overseas trading in reaction to unexpectedly encouraging data on factory activity in Britain and the euro zone. Their decline accelerated following data from the Institute for Supply Management that showed U.S. factory activity hit a 2-1/2-year high in November, brightening the economic outlook as the year winds down.
"This is all good news. Early in the expansion, manufacturing was a star. Now it's picking up again with housing slowing down," said David Berson, chief economist at Nationwide Insurance in Columbus, Ohio.
On the supply front, the Fed bought $1.48 billion in bonds due 2038 to 2043 on Monday as part of its ongoing purchase program that is aimed at lowering unemployment and averting deflation. It will purchase debt every day this week, including two buybacks on Tuesday.
Expectations of heavy corporate debt issuance before the year-end holiday period also weighed on Treasuries as dealers and investors made way to absorb the new debt.
Bonds had been boosted through Friday by month-end buying by portfolio managers to rebalance holdings against benchmark indexes.
Separately, the Treasury Department said it postponed the sales of $32 billion in three-month bills and $27 billion in six-month bills to Tuesday from Monday due to an error that occurred during a test of its auction system.