Treasury yields edge lower on weak data

US 10-YR
US 30-YR

U.S. Treasury yields edged lower on Monday on weak European economic data and the view that modest growth in U.S. hourly earnings, as seen in Friday's jobs report, could lead to the Federal Reserve delaying raising rates.

Economy Ministry data showed German industrial orders plunged by 5.7 percent in August, while the Sentix research group's index tracking morale among investors in the euro zone tumbled to negative 13.7 in October from negative 9.8 the previous month.

That marked the biggest drop in German industrial orders since the height of the global financial crisis in 2009 and the lowest level for sentiment since May 2013. The data pushed German bund yields lower and made U.S. Treasury yields more attractive by comparison.

"Rate differentials keep Treasury yields at bay,'' said William O'Donnell, head U.S. Treasury strategist at RBS Securities in Stamford, Connecticut.

"When you think about what's going on in Europe, it's nothing good, and as long as that's the case, it's going to keep people from aggressively selling an already cheap Treasury market,'' he said.

Analysts said traders also focused on disappointing hourly earnings growth in September. Friday's U.S. employment report, while showing employers added 248,000 jobs last month and the jobless rate fell to its lowest since July 2008, also showed average hourly earnings increased just 2.0 percent.

The weak detail suggested the Fed could keep short-term interest rates low in the near-term, a view that prevented traders from selling notes Monday.

"There is still slack in the system,'' said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. "This gives the Fed more room to err on the side of caution."

The U.S. Treasury will sell $61 billion in new debt this week, comprising $27 billion in three-year notes on Tuesday, $21 billion in 10-year notes on Wednesday and $13 billion in 30-year bonds on Thursday.

Goldberg said the upcoming auction of 30-year debt may have pressured yields on 30-year bonds earlier in the session.

Traders tend to sell debt ahead of auctions in anticipation of buying it back at cheaper prices.

U.S. three-year Treasury notes were last up 4/32 in price to yield 0.99 percent, from 1.04 percent late Friday.

Benchmark 10-year U.S. Treasury notes were last up 3/32 in price to yield 2.42 percent, from 2.45 percent late Friday.

U.S. 30-year bonds were last down 2/32 to yield 3.13 percent, unchanged from late Friday.

On Wall Street, U.S. stocks traded sideways, with the benchmark S&P 500 stock index last down 0.03 percent.