Treasury Yields Up After Rising Durable Goods Report

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U.S. Treasury yields rose for a third session on Monday after a gauge of planned U.S. business spending rose in December, fueling some expectations economic growth may be picking up enough that the Federal Reserve may mull pulling back on economic stimulus.

Investors were also pushing for price concessions in auctions of $99 billion of U.S. government debt this week, although losses were pared after data showing contracts to buy previously owned U.S. homes unexpectedly fell in December.

The Commerce Department said Monday orders for long-lasting goods rose more than expected in December and non-defense capital goods orders excluding aircraft, a closely watched proxy for investment plans, edged up 0.2 percent where the market had expected a small drop.

"Pressure continued to mount in Treasurys with prices opening in New York slightly lower and heading south from there after the stronger-than-expected durable goods report," said Justin Lederer, Treasury strategist at Cantor Fitzgerald in New York, adding "the market was able to find some stability, recovering some of its losses, aided by weaker pending home sales."

(Read More: Japan Forecasts Real GDP Growth of 2.5% in 2013/14)

The benchmark 10-year note traded 7/32 lower in price to yield 1.97 percent, up from 1.95 percent late Friday. The yield pierced 2 percent early in the session for the first time since last April.

"Although the (durable goods) report details reveal tepid business investment — a long-term trend in place since 2010 — headline strength was enough to spark concerns the Fed may begin to rethink accommodation at this week's upcoming Federal Open Market Committee meeting," said Lindsey Piegza, economist at FTN Financial in New York.

On Wednesday the Fed caps a two-day policy meeting. Its policy statement will be scrutinized for signs of whether it is mulling an end to its latest bond purchase program this year. Minutes from the Fed's December meeting, released on Jan. 3, showed that some voting members of the Fed's policy committee opposed continuing bond buybacks, sparking speculation that the U.S. central bank may end its latest round of quantitative easing before the close of 2013.

The Treasury kicked off this week's debt supply with $35 billion in two-year notes on Monday. It will sell $35 billion in five-year notes on Tuesday and $29 billion in seven-year notes on Wednesday.

(Read More: Fed Balance Sheet Hits Record $3 Trillion)

The Treasury sold the two-year notes at a high yield of 0.288 percent, and with a bid-to-cover ratio of 3.77.

Treasury debt prices traded steady at lower levels after the auction. On Friday, the Labor Department's monthly nonfarm payrolls data could help clarify the state of the U.S. jobs market, which policymakers have said is a key gauge of the recovery in the world's biggest economy.

Some analysts said the stubbornly high rate of unemployment meant the Fed was unlikely to change its stance any time soon.

"Policy seems to be on autopilot until the unemployment rate gets to 6.5 percent," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. The jobless rate was 7.8 percent in December.

Treasuries sold off last week partly on news that European banks planned to repay more emergency loans than expected, suggesting the region's banking sector was on the mend and cooling demand for lower-risk debt.

Thirty-year bonds on Monday traded 9/32 lower in price to yield 3.15 percent, up from 3.13 percent late Friday. Bond yields reached as high as 3.18 percent on Monday.

US Treasury Yields

U.S. Treasurys