Yields rise with German debt, re-set of bearish bond bets



U.S. Treasurys yields rose to their highest in three weeks on Tuesday as investors reset bets that yields are likely to climb after they fell to 11-month lows last week and as German government debt weakened.

Yields have risen this week after month-end buying from last week dissipated.

U.S. bond yields rose with German bund yields on Tuesday after euro zone inflation data was in line with revised expectations, prompting some in the market who had expected an even weaker number to book profits after a recent rally.

Investors have also covered bets that yields would rise in recent weeks, which helped to push them lower. But traders said those bets were being reset, which is put pressure on the bonds and sent yields higher again.

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"I think the short base is building again,'' said Tom Tucci, head of Treasurys trading at CIBC in New York. The difference between the number of investors who said they are bearish on U.S. long-dated Treasurys exceeded those who are bullish grew to its biggest in eight years, according to a J.P. Morgan survey released on Tuesday.

Is there still value in Treasurys?

Traders are preparing for a busy second half of the week, with the European Central Bank expected to cut interest rates and announce other measures to stimulate growth in the region when it meets on Thursday.

At the same time, strong corporate debt issuance is reducing demand for Treasurys.

"Yesterday there was a large amount of corporate issuance that will continue into the end of the week. That is weighing on prices, and the European market is staying offered rather than bid into the ECB,'' Tucci said.

Benchmark 10-year notes were last down 18/32 in price to yield 2.593 percent. Thirty-year bonds fell 1 4/32 in price to yield 3.430 percent.

The U.S. jobs report for May is due on Friday and is expected to show that employers added 218,000 people to payrolls, according to the median estimate of 105 economists polled by Reuters.

"The past 3 months have seen Treasury yields move higher into payrolls and this week is shaping up the same way,'' said Richard Gilhooly, an interest rate strategist at TD Securities in New York.

The Federal Reserve bought $1.87 billion in notes due in 2020 and 2021 on Tuesday as part of its ongoing purchase program.