December 2, 2019 / 4:17 PM / 7 days ago

RPT-TREASURIES-U.S. yield curve steepens on weak construction spending

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By Ross Kerber and Kate Duguid

BOSTON, Dec 2 (Reuters) - The U.S. Treasury yield curve steepened on Monday as investors digested a report of unexpectedly weak U.S. construction spending.

The U.S. yield curve, typically measured as the difference between the yields on two- and 10-year U.S. Treasury notes was at 20.6 basis points, up 4.6 basis points from Friday’s close. Immediately following the data, the spread hit its highest since Nov. 18.

The Commerce Department on Monday reported that construction spending unexpectedly fell in October as investment in private projects tumbled to its lowest level in three years.

The construction data sounds a cautionary note on the U.S. economy despite a recent string of upbeat reports. Construction spending dropped 0.8% in October versus an increase of 0.4% predicted by economists polled by Reuters.

Longer-dated U.S. Treasury yields mostly shrugged off the bleak report. The benchmark 10-year yield was 5.2 basis points higher on the day, last at 1.829%, reflecting reduced investor appetite for Treasuries. The two-year yield , typically an indication of interest rate expectations, was 2 basis points higher at 1.624%.

“Overall, it seems like the market doesn’t want to stray too much,” said Justin Lederer, Cantor Fitzgerald Treasury analyst.

He noted how yields on 10-year U.S. Treasuries had reached above 2% recently, but said now traders are waiting to hear from the U.S. Federal Reserve about interest rates next week.

“It feels like we held 2% a few weeks ago. Now it will take a lot for us to break above that,” he said.

Also on Monday the Institute for Supply Management(ISM) said its index of national factory activity fell to 48.1 from 48.3 the month before. The reading was below expectations of 49.2 from a Reuters poll of 57 economists.

Bond yields had started the day up slightly as traders balanced a report of strong Chinese factory activity with a planned restoration of U.S. tariffs on some imports.

China’s factory activity expanded at its fastest pace in three years, a private sector survey showed on Monday, reinforcing upbeat government data released over the weekend. The data follows a clutch of mixed headlines on U.S.-China trade last week.

World stock markets reversed earlier gains on Monday after U.S. President Donald Trump said he would restore tariffs on some imports from Brazil and Argentina, overshadowing data showing that the Chinese and euro zone economies were stabilizing.

Reporting by Ross Kerber Editing by Nick Zieminski

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