Treasury yields fall as Greece worries resurface

Reuters with CNBC

U.S. Treasurys yields fell on Monday with benchmark yields retreating from seven-month highs as concerns about Greece and its ability to avert default renewed safehaven demand for low-risk government debt.

Greece and its creditors have not reached a deal so the cash-strapped nation could obtain more funds. Greece delayed a 300 million euro payment to the International Monetary Fund last week and rattled investors on Friday when its Prime Minister Alexis Tsipras' outright rejected a proposal from lenders.

Athens struck a more conciliatory tone on Monday, giving some hopes that an agreement may be obtained by the end of June.

"Greece is clearly a big issue. People are watching and waiting," said John Herrmann, an interest rates strategist at Mitsubishi UFJ Securities USA Inc. in New York.

Greece-related safety bids provided a respite for the U.S. bond market that came off its worst week in three months.


A surprisingly strong payrolls report in May spurred selling in Treasurys on May, resulting in 10-year yields to book their largest single-week increase in nearly two years. The drop in yields will likely be limited as investors seek to reduce their Treasurys holdings in anticipation of this week's supply.

The Treasury Department will sell a combined $58 billion in three-year, 10-year and 30-year securities, starting Tuesday. Investors also face plenty of choices from the higher-yielding corporate bond sector, analysts said.

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Companies are expected to sell about $30 billion in investment-grade debt this year, according to IFR, a unit of Thomson Reuters.

In early U.S. trading, the yield on benchmark 10-year Treasurys notes last traded at 2.38 percent, down 3 basis points from late on Friday.

It hit 2.442 percent on Friday, which was the high since early October, according to Tradeweb. The 30-year bond yield declined by about 2 basis points to 3.10 percent.

Yields at the short-end of the curve edged down after rising earlier, with two-year yields at 0.7088 percent compared with 0.71 percent late on Friday, reflecting nervousness about the U.S. rate outlook.

"It's all change in sentiment in new directions this morning. The strength of Friday's U.S. payrolls number and stronger Chinese trade surplus numbers should be a wake-up call to the growth naysayers," Bill Blain, a strategist at Mint Partners in London, said in a note on Monday.

He was referring to data on Monday that showed China posted a near-record trade surplus in May at $59.49 billion, although imports tumbled 17.6 percent from a year earlier – highlighting a slowdown in consumer spending.

"Treasurys are down and the dollar is up. The talking heads are now confidently predicting a September Fed hike, and the smarter ones wondering how much," Blain wrote.

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Analysts said that in the wake of the upbeat payrolls number, U.S. retail sales data on Thursday will be watched closely for further clues on when to expect a rate rise.

German Bunds, a key driving factor behind the U.S. Treasury market in recent weeks, remained in focus.

The yield on the 10-year German Bund, the benchmark in Europe, rose as high as 0.90 percent on Monday after data showed German industrial output rose a higher-than-expected 0.9 percent in April.

—CNBC contributed to this report.