Yields rise after consumer spending rises in March

NEW YORK: US Treasury yields rose on Monday after data showed that US consumer spending increased by the most in more than 9-1/2 years in March though price pressures remained muted.

The surge in consumer spending sets a stronger base for growth in consumption heading into the second quarter after it slowed sharply in the first three months of the year. Tame inflation, however, supports the Federal Reserve's recent decision to suspend further interest rate increases this year.

It comes after data on Friday showed that US economic growth accelerated in the first quarter, though the burst in growth was driven by a smaller trade deficit and the largest accumulation of unsold merchandise since 2015. These are temporary boosters that are seen weighing on the economy later this year.

"There were a lot of people dismissing Friday's GDP report as being weaker than the headline number suggested. I think this shows you that, yes inflation was a little bit softer than expected, but growth is actually quite solid," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

The next major focus for the market will be the Treasury's refunding plans for the coming quarter and the conclusion of the Federal Reserve's two day meeting, both on Wednesday.

Fed Chairman Jerome Powell will give a press conference after the Fed statement and investors will be looking for indications on how the US central bank views market pricing of further rate moves.

Interest rate futures traders are currently pricing in a 65 percent chance of an interest rate cut by December, according to the CME Group's FedWatch Tool.

Traders will also be looking for details of what maturities the US central bank is likely to target under its plan to wind down purchases of mortgage-backed debt and boost purchases of Treasuries in the open market instead.

"That's roughly $200 billion a year. Anything they announce there that isn't in line with expectations will make the market react," Goldberg said.

Jobs data for April released on Friday will be closely watched for further indications of wage pressures and the strength of the labor market.