Treasuries Drop as Investors Await Data for Clues on U.S. Rates

  • Yields increase before manufacturing, construction reports
  • Friday’s payrolls the ‘most important thing’: Rabobank

Treasuries declined for a second day before a slew of data that may give more clarity on whether the U.S. economy is strong enough for the Federal Reserve to raise interest rates this year.

Benchmark 10-year securities were set for their first back-to-back declines in two weeks, before reports Monday that are forecast to show improvements in manufacturing and construction spending. Those will be followed two days later by data on services and factory orders, with the week ending with the release of non-farm payrolls on Friday.

The Bloomberg Barclays U.S. Treasury Index has declined 0.1 percent in the past month, cutting its advance this year to 5.1 percent. Yields have edged higher as Fed officials signal that policy tightening remains likely in 2016. That’s also reflected in futures, with the market-implied odds of an increase this year at 59 percent, according to Bloomberg calculations based on fed fund futures.

“The most important thing of course will be Friday’s payrolls data,” said Philip Marey, a strategist at Rabobank International in Utrecht, Netherlands. “Provided the data goes in the right direction, they will hike but there are considerable downside risks. The market has been prepared by the Fed for a December hike.”

Benchmark 10-year yields rose one basis point, or 0.01 percentage point, to 1.61 percent as of 7:53 a.m in New York, according to Bloomberg Bond Trader data. The 1.5 percent security due in August 2026 fell 1/8, or $1.25 per $1,000 face amount, to 99.

Treasuries advanced last week as mounting concerns about the financial health of Deutsche Bank AG roiled financial markets and fueled demand for the safest assets. They pared those gains Friday after a media report that the lender was nearing a settlement with the U.S. Department of Justice that was less than half the amount initially requested.

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