'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 rose on Monday amid data that did little to clarify the U.S. economic outlook after a weaker-than-expected jobs report helped to pare growth prospects.
The yield on the benchmark 10-year note rose 2.2 basis points to 2.182%, but that still made for its third lowest close this year. Bond prices move inversely to yields; one basis point is one hundredth of a percentage point.
The yield on the 2-year note increased 1.8 basis point to 1.308%, while the yield on the 30-year bond, or the long bond, gained 3.1 basis points to 2.840%.
The yield moves came after the ISM nonmanufacturing index for May fell to 56.9% (http://www.marketwatch.com/story/us-economy-keeps-up-fast-pace-in-may-ism-finds-2017-06-05), compared with 57.5% in the prior month. But April's reading represented a 12-year high, and remained above the 12-month average of 55.9%. 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, tepid economic data, highlighted by a worse-than-expected May jobs report, (http://www.marketwatch.com/story/us-adds-138000-jobs-in-may-unemployment-drops-to-16-year-low-of-43-2017-06-02)has done little to dissuade investors from expecting a June rate hike. The Chicago Mercantile Exchange's FedWatch tool (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)showed traders have priced in 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.
But market strategists said profit-taking and not solid economic data was responsible for Monday's yield rise. Long-dated Treasury yields consolidated as investors cashed in their holdings of U.S. government that appreciated after last week's rally. The yield for the 10-year Treasury lumped 8.9 basis points in the week ending June 9.
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), but bond markets showed little response to the attack. The yield for the 10-year U.K. government bond, or gilt, rose 2.3 basis points to 1.063%.
See: Here's what you need to know about Saudi Arabia's spat with Qatar (http://www.marketwatch.com/story/heres-what-you-need-to-know-about-saudi-arabias-spat-with-qatar-2017-06-05)
The European Central Bank will hold its policy meeting on Thursday. Some market participants are looking for ECB President Mario Draghi and senior policy makers to take 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 16:34 ET (20:34 GMT)