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Treasury yields higher on strong US data

U.S. Markets Overview: Treasurys chart

U.S. Treasury debt yields rose on Monday after data showed U.S. manufacturing activity rebounded in May and construction spending improved, suggesting the world's largest economy was on a more steady path to recovery after a soft patch in the first quarter.

Treasury debt prices, which move inversely to yields, were weighed down by profit-taking and unwinding of month-end demand as investors braced for a spate of economic data this week that could provide further clues about the timing of a Federal Reserve rate hike.

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The Institute for Supply Management said its index of national factory activity rose to 52.8 in May, from April's 51.5, which had tied with March's reading as the lowest since May 2013. The ISM number topped expectations of 52.0, according to a Reuters poll of economists.

Another report showed U.S. construction spending surged in April to the highest in nearly 6-1/2 years as outlays increased broadly, pointing to some pockets of strength in the economy.

Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut, said both reports should bolster U.S. growth expectations for the second quarter.

U.S. government bonds briefly pared losses after data showed U.S. consumer spending was unexpectedly flat in April, while inflation pressures remained muted, with a price index for consumer spending recording its smallest gain since late 2009 on an annual basis.

In afternoon trading, U.S. 30-year Treasury yields were last at yield 2.94 percent, from a yield of 2.885 percent late Friday. U.S. 10-year note yields were at 2.18 percent, from a yield of 2.123 percent late Friday.

CRT's Lyngen, however, cautioned against reading too much into Monday's price action, given the heavy data week.

Boston Fed President Eric Rosengren, who is not a voting member on the Federal Open Market Committee, sounded a dovish tone on Monday. He said he would like to begin raising rates as soon as possible, but noted risks from the slowdown in China and Europe in particular loom large, even as U.S. growth is still not strong enough.