NEW YORK: Benchmark US Treasuries yields stabilized on Monday after a study from the San Francisco Federal Reserve renewed concern there would be an early Federal Reserve rate increase, and as traders anticipated this week's supply.
Investors expect the Fed to keep interest rates lower for longer, and to raise them more slowly, than U.S monetary policymakers themselves expect, according to research by the San Francisco bank published on Monday. "This is a Fed district that is very dovish, so it did catch the market's attention," said Wilmer Stith, fixed income portfolio manager for Wilmington Trust in Baltimore, Maryland, in reference to the San Francisco Fed. "The gulf between where the market thinks rates will be and the Fed - that probably has to narrow."
He said that, in addition to the Fed paper, traders turned more optimistic on US economic growth after digesting last Friday's weaker-than-expected US employment report, resulting in Treasuries yields stabilizing from earlier session lows.
"Investors had time to sit back and realize that, while the payroll number was a disappointment, it is still a broad mosaic of economic growth that has been revealed to us," Stith said. The Labor Department said on Friday that US nonfarm payrolls increased 142,000 last month, well below expectations of a rise of 225,000, according to a Reuters poll.
Investors also said concerns over the strength of a ceasefire between Ukraine and pro-Russian separatists calmed as the day proceeded, leading investors to unwind earlier safe-haven bids.
"The Ukraine ceasefire has lived up to what they agreed upon on Friday," said Sean Murphy, a Treasuries trader at Societe Generale in New York.
The ceasefire, which took effect on Friday evening, was largely holding on Monday in eastern Ukraine, but comments from Ukrainian President Petro Poroshenko vowing to defend the eastern port of Mariupol met some skepticism. Murphy also said traders likely sold some Treasuries to make way for this week's incoming supply.
The Treasury Department will sell $27 billion in three-year notes on Tuesday, $21 billion in 10-year notes on Wednesday and $13 billion 30-year bonds on Thursday.
Benchmark 10-year US Treasury notes were last down 2/32 in price to yield 2.47 percent, little changed from a yield of 2.46 percent late on Friday. US 30-year Treasury bonds were last up 9/32 in price to yield 3.22 percent, from a yield of 3.24 percent late on Friday. US five-year Treasury notes were last down 4/32 in price to yield 1.72 percent from a yield of 1.69 percent late Friday.
On Wall Street, US stocks ended lower after a drop in energy shares. The benchmark S&P 500 closed down 0.31 percent.
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