Yields rise as US manufacturing sector expands

NEW YORK: US Treasury yields rose on Monday after data showed that the US manufacturing sector expanded, albeit at a slower pace than the previous month.

The Institute for Supply Management (ISM) said its index of national factory activity fell to 50.8 in April from 51.8 the month before.

"I think perhaps people were positioning for a weaker number, given the weakness in some of the regional indicators," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. "If you drill down into the index it wasn't as bad."

Benchmark 10-year notes fell 11/32 in price to yield 1.86 percent, up from 1.82 percent on Friday.

Yields had risen earlier on Monday as investors evaluated when the Federal Reserve is likely to next raise interest rates again and awaited Friday's highly anticipated jobs report for April.

Yields have fallen since the Fed kept rates unchanged last Wednesday and described an improving labor market while also acknowledging that economic growth seemed to have slowed.

The US central bank also removed a reference to global risks, opening the door slightly to a rate hike in June, but some analysts viewed the move as less hawkish than they had expected.

"They weren't really eager to pound the table and keep June on the table," said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York. "Right now to bet on the Fed you almost have to bet that everything will go perfectly, and no one is willing to bet on that yet."

Investors have priced in a low chance of further rate hikes this year even as Fed officials and economists indicate that two increases are likely.

One factor dissuading investors from betting on rate increases in the bond market is that it is costly to take a medium-term view that yields will rise, while worsening economic data or any new volatility in oil or equity prices could also send yields still lower.

Speeches by Fed officials this week will be in focus for any new indications of when a rate hike is likely.

Data will be dominated by Friday's employment report, which is expected to show that employers added 200,000 jobs in April, according to the median estimate of 88 economists polled by Reuters.