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Bonds fall as stocks rally; traders await fresh data

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U.S. Treasurys prices fell on Monday before a heavy week of data, including retail sales and inflation reports, which will be watched for signs of economic strength and whether price pressures are rising from levels that are far below the Federal Reserve's targets.

Government debt yields rose last week as the Treasury sold new supply and demand for Thursday's sale of 30-year bonds was muted, with price losses extending through to Monday as dealers sold bonds they absorbed during the auctions.

Improving U.S. economic data and subdued demand for long bonds at last week's auction has also helped the yield curve steepen from five-year lows, as the Federal Reserve keeps paring its bond purchases with an eye on interest-rate hikes that many see as likely to begin next year.

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"The Fed has made it pretty clear that they are going to continue to taper, so the market is looking for any type of news or data that might establish the view of when a rate rise might occur," said Jason Rogan, a managing director in Treasuries trading at Guggenheim Securities in New York.

Low inflation is seen as complicating the Fed's ability to raise rates unless there are signs that it will rise back to the Fed's 2 percent target.

This and dovish comments from European Central Bank President Mario Draghi last week were seen as limiting market moves even as the yield curve steepened and long bonds underperformed.

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"Inflation continues to be tame and that puts a curb to some of the steepening that we're seeing," said Sean Murphy, a Treasuries trader at Societe Generale in New York.

The spread between five-year note yields and 30-year bond yields was around 184 basis points on Monday, after trading at 174 basis points before Thursday's bond auction and at 167 basis points on May 2, the flattest since 2009.

Benchmark 10-year notes were last down 9/32 in price to yield 2.66 percent, the highest since May 2, and up from 2.62 percent late on Friday. Thirty-year bonds dropped 14/32 in price to yield 3.49 percent, the highest since April 30 and up from 3.47 percent late on Friday.

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U.S. retail sales data for April will be released on Tuesday. The U.S. Producer Price Index for April is due on Wednesday and the Consumer Price Index for April is set for release on Thursday.

The Fed bought $2.66 billion in notes due in 2018 on Monday as part of its purchase program. The U.S. central bank will buy between $0.85 billion and $1.10 billion in bonds due between 2036 and 2044 on Tuesday.

—By Reuters

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