US Treasuries may see further weakness after falling on Monday on economic optimism and corporate deal hedging, though investors may wait until after Friday's US jobs data to bet on yields heading much higher. Treasuries pared some early losses on Monday after US manufacturing data disappointed by only meeting, rather than beating, expectations.
Volumes were below average, however, as traders returned from holidays in the United States and markets in the UK, Japan, Australia and New Zealand were closed. The new year will allow investors to take new positions, and higher leverage, after paring exposure for the last few months heading into year-end.
The direction of their new bets is likely to be heavily influenced by projections on the US economy, with jobs data the most important indicator. "How the payroll growth pans out for the next few months is of the upmost importance to the bond market and the trajectory of rates," said Chris Ahrens, interest rate strategist at UBS Securities in Stamford, Connecticut.
Treasuries are currently priced for Friday's data to show employers added around 150,000 in jobs in December, and a large surprise to the upside or downside is likely to move yields, Ahrens said. Treasuries yields temporarily dropped last month after November's data disappointed with only 39,000 additional jobs, before climbing into year-end as investors pared back risk. Renewed risk appetite may support yields in the near term, Ahrens said.
Benchmark 10-year notes fell 10/32 in price on Monday, their yields rising to 3.33 percent, from 3.29 percent late Friday. Yields last month rose the most since the previous December, climbing from 2.80 percent at the beginning of the month. Notes yields reached as high as 3.44 percent Monday morning before data from the Institute for Supply Management showed an as-expected increase in manufacturing activity and prices paid in December.
Five-year notes fell 4/32 on Monday, their yields little changed at around 2.01 percent, while 30-year bonds dropped 24/32 to yield 4.39 percent, up from 4.34 percent late on Friday. Expectations of heavy corporate bond supply this month may also be weighing on the market, as January is traditionally a popular month for companies to issue debt, analysts said. Companies may sell around $75 billion to $80 billion in dollar-denominated debt this month, compared with volumes of around $70 billion to $75 billion in recent years, said analysts at IFR, a Thomson Reuters service.