Treasury prices fall ahead of Yellen's testimony



U.S. Treasury prices edged lower on Monday on expectations that Federal Reserve Chair Janet Yellen could take a less accommodative stance on interest rates in a congressional testimony on Tuesday.

Benchmark 10-year U.S. Treasury notes were last down 7/32 in price to yield 2.55 percent, from a yield of 2.52 percent late Friday. U.S. 30-year Treasury bonds were last down 17/32 to yield 3.37 percent, from a yield of 3.34 percent late Friday.

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Yellen, who will go before the Senate Banking Committee Tuesday to deliver the latest report to Congress on monetary policy, could take a hawkish stance on raising interest rates in response to strong June jobs data, analysts and investors said.

"The data is definitely stronger and getting more indicative that we're going to move closer to that rising rate cycle,"said George Rusnak, managing director of global fixed income for Wells Fargo Private Bank in Princeton, New Jersey. "If you start seeing any signs that they're acknowledging that in the Fed, you could see rates tick up here a little bit."

Yellen is also set to speak before a House committee on Wednesday. The Fed chief delivers testimony on monetary policy twice a year to Senate and House committees.

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Private-sector jobs and nonfarm payrolls growth in June beat expectations, while the unemployment rate fell to a near six-year low of 6.1 percent. Traders are watching the Fed closely for signs of when the central bank will raise rates, which will hurt bond prices.

Analysts said the installment of a new chief executive at Portugal's top bank, Banco Espirito Santo, and a statement that the bank's main shareholder had sold a 4.99 percent stake eased concerns of potentially destabilizing losses at the bank.

"Banco Espirito Santo will have to get its house in order," said Justin Hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago. "The story is still unfolding, but the immediate actions certainly calm fears for the day."

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Analysts said June U.S. retail sales data, due early Tuesday, could boost expectations for better second-quarter U.S. economic growth. Economists expect retail sales to have grown 0.6 percent, up from 0.3 percent in May, according to a Reuters poll.

Comments from European Central Bank President Mario Draghi had little effect on Treasury prices. Draghi, addressing a European Parliament committee in Strasbourg, reiterated that the ECB would maintain a high degree of monetary accommodation and could use unconventional instruments to counter low inflation.

The Fed bought $1.133 billion in Treasurys maturing August 2039- August 2043 on Monday as part of its ongoing asset purchases, which had little impact on Treasury prices.

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On Wall Street, U.S. stocks rose, with better than expected earnings from Citigroup and more deals in the healthcare space lifting the Dow Jones industrial average to a new intraday high.

—By Reuters