NEW YORK: Prices for US Treasuries were mixed in choppy trade on Monday, with benchmark 10-year notes flat, as investors weighed surprisingly weak US manufacturing data for May against caution ahead of jobs data on Friday. The US bond market was trying to gain traction on the first trading day of June following its worst month in nearly 2-1/2 years.
The benchmark 10-year note yield hit a more-than 13-month high in May on a 46-basis-point jump - the biggest monthly increase since December 2010, according to Reuters data - on views the Federal Reserve could soon pare back its $85 billion per month asset purchases as the economy brightens.
But a disappointing US manufacturing reading from the Institute for Supply Management on Monday revived speculation of another spring slowdown, which could keep the Fed buying Treasuries and mortgage-backed securities to buoy the economy.
The ISM US factory index fell to 49.0 in May, its weakest reading since June 2009. A reading below 50 indicates contraction in the sector.
The benchmark 10-year note was flat in price on Monday afternoon to yield 2.132 percent.
The 30-year bond rose 6/32 in price to yield 3.268 percent from 3.278 percent late Friday.
"There's a big debate whether this is a temporary move in yields or this is the real move to higher yields. It all depends on whether we continue to get better data," said Thomas Roth, executive director of US government bond trading at Mitsubishi UFJ Securities USA in New York.
Among the data are jobs figures due on Friday, when the US Labor Department will release its monthly payroll survey at 8:30 a.m. (1230 GMT). Economists recently polled by Reuters forecast US employers likely added 170,000 jobs in May, slightly above the 165,000 gain in April.
Fed policymakers have said they want to see the unemployment rate closer to 6.5 percent from the current 7.5 percent.
Because the jobs data is so important, said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut, markets could trade largely sideways until then.
"Quite frankly, it really is employment week," he said.
As part of its stimulus program, the Fed on Monday bought $1.46 billion in Treasuries that mature from February 2036 through February 2043.
Complicating any potential Fed exit, however, is inflation, or the lack thereof. Core inflation indexes have been running well below the Fed's 2 percent target, which supports the case for the Fed to persist with its current pace of bond purchases.
Fed policymakers may indeed want to devise an exit, Lyngen said.
"Are they going to have the opportunity to (exit)? - that's another question," he added.
The Fed will hold its next policy meeting on June 18-19.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>
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