TREASURIES-Yields rise from one-year lows

Mon Jun 2, 2014 9:31am EDT

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By Karen Brettell
    NEW YORK, June 2 (Reuters) - U.S. Treasuries yields rose on
Monday, after falling to one-year lows last week, as investors
were reluctant to buy bonds that offer low returns on
expectations that yields will rise if the economy continues to
gain momentum.
    Treasuries yields have fallen on expectations that the
European Central Bank will cut interest rates and take other
measures meant to stimulate growth when it meets on Thursday.
    But dovish central banks are also making investors bet that
growth and inflation may accelerate, and that bond yields will
need to rise in tandem.
    "People are thinking that maybe the data isn't going to be
as bad and the ECB will do some kind of credibly dovish action
on Thursday that will increase things like inflation
expectations and growth expectations," said Ira Jersey, an
interest rate strategist at Credit Suisse in New York.
    Benchmark 10-year notes fell 7/32 in price to
yield 2.51 percent. The yields have risen from an 11-month low
of 2.40 percent reached on Thursday, which is also a level that
has technical resistance. 
    Thirty-year bonds fell 19/32 in price to yield
3.36 percent, up from an 11-month low of 3.27 percent on
Thursday.
    Treasuries typically move in correlation with German
government bonds, which have rallied on expectations of more
stimulus. Benchmark U.S. 10-year notes are also still relatively
more attractive than the equivalent German bunds that pay more
than a percentage point less in yield.
    Short covering by investors that had bet that stronger U.S.
growth would send Treasuries yields higher has also helped U.S.
bonds rally, though there are signs that many of these shorts
have now been covered.
    Speculators' net bearish bets on U.S. 10-year Treasury note
futures fell to their lowest in three months as the bond market
rallied in May on worries about the U.S. economy, according to
Commodity Futures Trading Commission data released on Friday. 
    China's manufacturing activity expanded at the fastest pace
in five months in May, data showed, reducing the safety demand
for Treasuries. 

 (Editing by Chizu Nomiyama)
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