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Yields increase after personal income data affirm US growth

U.S. Markets Overview: Treasurys chart

U.S. Treasury yields rose on Monday after data showed that personal income rose in January, reducing some fears that the U.S. economic growth is slowing.

Personal income rose by 0.3 percent in January though personal consumption fell by 0.2 percent, the U.S. Commerce Department said. Some economists had expected the number would be dragged down by a drop in medical care costs.

"There were some concerns that weaker medical readings would pass through to weaker PCE because it's a major factor. It looks like that didn't really happen," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. "It allays some of the fears of a slowdown in growth momentum."

Benchmark 10-year Treasury note yields were last at 2.07 percent, up from 2.00 percent late on Friday.

Separately, the Institute for Supply Management (ISM) said its index of national factory activity fell to 52.9 from 53.5 the month before. The reading was shy of expectations of 53.1, according to a Reuters poll of economists, and was the lowest reading since January 2014.

The main focus for the market this week will be Friday's employment report for February. Employers are expected to have added 240,000 jobs in the month, according to the median estimate of 100 economists polled by Reuters.

"It's going to be on payrolls shoulders to show the market that things aren't slowing down that much," said Goldberg. "If you have a weaker payroll print and underperformance in wage growth that could have serious implications for whether the word 'patient' is removed at the March meeting, and that could lead to very considerable repricing for Fed hikes."

Some investors and analysts expect that the Fed will drop the word "patient" in its forward guidance at this month's meeting, held on March 17-18. The Fed said in December that it will be patient in raising rates, replacing its former pledge to keep rates near zero for a "considerable time."

Expectations that the Federal Reserve could hike rates by mid-year rose in February after a strong U.S. employment report for January and stronger core consumer prices data, helping the bonds post their biggest monthly loss since May 2013.

Reuters contributed to this report.