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TREASURIES-Prices drop as profit booked from previous session gains

NEW YORK, June 5 (Reuters) - U.S. Treasury debt prices fell on Monday in thin trading, as investors booked profits after gains the previous session on a U.S. employment report that underwhelmed expectations and suggested a more cautious Federal Reserve policy beyond June.

Bonds unwound some of last week's gains despite a terror attack in Britain over the weekend, with investors also lightening positions ahead of key event risks such as the British elections and European Central Bank monetary policy meeting.

"We had a pretty significant reaction to payrolls, which was a little overdone," said Bruno Braizinha, interest rates strategist at Societe Generale in New York.

"U.S. payrolls took the 10-year yield to the bottom of the range which was 2.17 percent. So we kind of expect a little bit of support when you start hitting the bottom of the range."

Nonfarm payrolls increased 138,000 last month as the manufacturing, government and retail sectors lost jobs, the Labor Department said. Economists polled by Reuters had forecast a rise of 185,000.

Braizinha added that volumes were lower than normal on Monday, with many European markets closed for holidays.

U.S. data reports on Monday were mixed, underscoring a trend that has been in place so far this year.

Factory orders fell 0.2 percent in April, its first drop in two months, while an index for the U.S. services sector slipped to 56.9 last month from 57.5 in April, although the employment index was at its highest since July 2015.

Another notable feature in the U.S. services index was the drop in prices paid to 49.2, from 57.6 in April.

"The prices paid component offers yet another piece of evidence supporting a sustained lower-rate environment," said Ian Lyngen, head of U.S. rates strategy, at BMO capital Markets in New York.

In mid-morning trading, U.S. 10-year Treasuries were last down 4/32 in price, with yields at 2.173 from 2.159 percent late on Friday.

U.S. 30-year bonds fell 10/32 in price, yielding 2.828 percent, compared with Friday's 2.812 percent. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Bernadette Baum)