TREASURIES-Yields rise before ECB meeting, U.S. payrolls report

Mon Jun 2, 2014 11:26am EDT

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(Adds manufacturing data, quotes)
    * Yields rise, 10-year yields back above 2.50 percent
    * ECB meeting, US payrolls in focus
    * Bond purchases ebb after month-end buying

    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
completed month-end bond purchases and before a highly
anticipated European Central Bank meeting and U.S. employment
report due later this week.
    Yields have fallen on expectations that the ECB will cut
interest rates and take other measures meant to stimulate growth
when it meets on Thursday.
    Balance sheet repositioning and index extension buying also
boosted demand for Treasuries last week, with demand ebbing on
Monday.
    "We're getting a repricing as the market finds its footing
ahead of a big week of releases with the ECB and payrolls at the
end of the week,"  said Eric Bergstrom, co-head of U.S. rates
trading at BMO Capital Markets in Chicago.
    Benchmark 10-year notes fell 7/32 in price to
yield 2.51 percent, up from an 11-month low of 2.40 percent on
Thursday. 
    Thirty-year bonds fell 14/32 in price to yield
3.36 percent, up from an 11-month low of 3.27 percent on
Thursday.
    Dovish central banks and disappointing economic growth in
the first quarter have helped yields fall this year, scuttling
expectations that they would rise. 
    At the same time, more economic stimulus from the ECB is
making investors bet that growth and inflation may accelerate,
which could send yields back higher.
    "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.
    Bonds briefly pared price losses on Monday after data showed
that the pace of growth in the U.S. manufacturing sector
unexpectedly slowed in May.
    The Institute for Supply Management (ISM) said its index of
national factory activity fell to 53.2 last month from 54.9 in
April, and the employment index dropped to 51.9 from 54.7 in the
same time frame. 
    "It was slightly disappointing data. The interesting part
was the employment component was down, the ISMs are highly
correlated to payrolls," said Bergstrom.
    The jobs report for May will be released on Friday.
    Short covering by investors that had bet that stronger U.S.
growth would send Treasuries yields higher has also helped U.S.
bonds rally in recent weeks, though there are signs that more 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. 

 (Editing by Chizu Nomiyama and Tom Brown)
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