U.S. government debt prices fell Monday as a mixed bag of economic data reinforced expectations the Fed could raise interest rates at least once more.
The benchmark 10-year Treasury note's yield rose above 4.90 percent to a near four-year high on Monday as bond investors bet on the Fed and other global central banks tightening interest rates against a backdrop of fairly robust global economic growth, analysts said.
The Treasury market is lower today under pressure from a sell-off in Japanese government bonds (JGBs) overnight and because of strong euro zone data that came out this morning, said William O'Donnell, a strategist at UBS.
Strengthening economies in Japan and Europe, combined with the threat of further rate hikes from the Federal Reserve has investors anticipating higher rates and acting defensively, O'Donnell said.
Treasuries seesawed in choppy trade as data showing robust U.S. construction spending, fairly solid pending home sales and softer-than-expected manufacturing gave market investors few clear-cut directional cues.
In early afternoon trading, benchmark 10-year notes were down 5/32 in price to yield 4.87 percent, up from 4.85 percent on Friday, but below the 4.907 percent hit earlier -- the highest in almost four years.
Market expectations for the Federal Reserve to raise official interest rates at least once more in May to 5 percent remained in place after the day's U.S. data, analysts said.
The ISM report doesn't change the world for (the Fed) and the world for them still includes another rate hike to 5.00 percent, said Kevin Logan, an economist with Dresdner Kleinwort Wasserstein in New York.
The prospect of higher U.S. interest rates puts upward pressure on Treasuries yields and downward pressure on prices.
The benchmark federal funds rate is at 4.75 percent after the Fed raised rates for the 15th straight time last week.
Despite the overall easing in manufacturing growth, the Institute for Supply Management's prices paid component of its report signaled some price pressures and lent support to bond yields, since it could encourage the Fed to continue tightening monetary policy, traders said.
The Fed has been very worried about pass-through inflation of rising commodity prices to the final buyer, said Mary Ann Hurley, senior Treasuries trader at brokerage D.A. Davidson in Seattle.
Two-year notes slipped 2/32 in price, yielding 4.86 percent, down from around 4.87 percent before the U.S. data but up from 4.82 percent late Friday.
Five-year notes slipped 4/32 in price for a yield of 4.85 percent, while the 30-year bond was down 4/32 to yield 4.90 percent. (Additional reporting by Pedro Nicolaci da Costa and Chris Reese)