US 10-year notes nudge higher on dip-buying

A 0.8 percent rise in consumer spending in July, the biggest gain in five months, reported on Monday, provided a ray of hope for the US economy after a slew of recent reports that had signaled a sharp slowdown.

A merger between two big Greek banks generated some optimism that Europe is working through its debt problems, helping to pare safe-haven demand for U.S government debt, traders and investors said.

Ten-year notes rose about 8/32 to 99-0.5/32 in price to yield 2.236 percent, down from late US levels of 2.264 percent. The 10-year yield dropped to about 1.98 percent earlier in August, its lowest in at least 60 years.

S&P futures declined 0.1 percent and MSCI's index of Asia-Pacific shares outside Japan climbed 1.2 percent.

10-year Treasury yields remain vulnerable as investors stay on edge after an extremely volatile August and may still fall below 2 percent if one of the upcoming US data releases disappoints investors, says Tomoaki Shishido, an analyst at Nomura Securities.

"Whether the latest rebound in risk appetite is sustained hinges on Thursday's US manufacturing and Friday's US jobs data," Shishido said. "Despite risks, I don't think that the economy is in as bad a shape as some fear and I think 10-year yields may pop above 2.5 percent within the next 3-6 months."

Traders, however, refrained from aggressive moves, eager to see the Federal Reserve's minutes from its August Fed Open Market Committee meeting, due at 1800 GMT, after its members expressed widely differing opinions on the health and pace of economic growth and inflation at the previous meeting.

Copyright Reuters, 2011