BOND REPORT: Treasury Yields Try To Rebound From November Lows

By Sunny Oh Features Dow Jones Newswires

'The current perception is that it will be much more challenging to deliver the fifth rate-hike of the cycle and rollover-tapering', says analyst

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Treasury yields gained on Monday amid data that was expected to clarity the U.S.'s economic outlook after a weaker-than-expected jobs report helped to pare growth prospects.

The yield for the benchmark 10-year note rose 2.2 basis points to 2.181%, after falling to 2.159%, the lowest level since November 10. Bond prices move inversely to yields; one basis point is one hundredth of a percentage point.

The yield for the 2-year note increased 1.2 basis point at 1.302%, while the yield for the 30-year bond, or the long bond, gained 3.1 basis points to 2.840%.

The yield moves came as the ISM nonmanufacturing index for May fell to 56.9%, compared with 57.5% in the prior month. Meanwhile, a separate report showed that U.S. productivity growth for the first three months of 2017 was raised to zero from 0.6% (http://www.marketwatch.com/story/us-productivity-in-first-quarter-zero-2017-06-05), suggesting the recent economic data wasn't as downbeat as originally reported.

Over the past weeks, weak economic data led by a worse-than-expected jobs report has done little to dissuade investors from a near-certain June rate hike. The Chicago Mercantile Exchange's FedWatch tool (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)showed traders were expecting a 95.8% chance of a rate increase in a week. But some say the Fed may push back the timing for an additional rate hike to next year.

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"The current perception is that it will be much more challenging to deliver the fifth rate-hike of the cycle and rollover-tapering--perhaps it ultimately comes down to a choice between the two," said Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets, in a note.

The coming week is packed with events that could lead to a surge of geopolitical concerns. On Thursday, ex-FBI director James Comey will give testimony on his firing (http://www.marketwatch.com/story/comey-to-testify-trump-asked-him-to-end-russia-probe-2017-05-31)after he was reportedly told to pull back the Federal Bureau of Investigation's inquiry into links between members of President Donald Trump's campaign and Moscow.

On the same day, the U.K. will hold its general election. Though the gap between the Conservative Party led by Prime Minister Theresa May and the Labor Party has narrowed (http://www.marketwatch.com/story/after-london-attack-uk-election-has-all-the-predictability-of-a-coin-toss-2017-06-05), pundits and polls show May is likely to retain her premiership.

The U.K. was struck by a terrorist attack over the weekend (http://www.marketwatch.com/story/pound-slips-against-dollar-in-wake-of-london-attack-2017-06-05), prompting sanctions against Qatar from its neighbors on allegations that its officials have sponsored terrorists. But bond markets showed little response to the attack. The yield for the 10-year U.K. government bond, or gilts, added 2.3 basis points to 1.063%.

The European Central Bank will hold its policy meeting on Thursday. Some market participants are hoping for the ECB President Mario Draghi and senior policy makers to switch toward a more hawkish tone to set up for a pullback of quantitative easing by the end of 2017. But analysts expect Draghi to stay tight-lipped and hold back on details for plans on monetary tightening.

See: Inflation drop likely to keep ECB cautious on QE (http://www.marketwatch.com/story/inflation-drop-likely-to-keep-ecb-cautious-on-qe-2017-05-31)

(END) Dow Jones Newswires

June 05, 2017 10:10 ET (14:10 GMT)