U.S. government debt prices fell on Monday as traders trimmed bond holdings after surprisingly strong data on the U.S. services sector and before auctions of new coupon supply.
Profit-taking after last week's late rally—based on a weaker than forecast July employment report—also weighed on bond prices, as did a little lightening of positions ahead of Treasury refunding auctions this week, traders said.
U.S. bond prices erased just some of Friday's rise in advance of this week's August refunding during which the Treasury will sell $72 billion worth of coupon-bearing debt.
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"Bond prices fell on a combination of an early morning pullback after Friday's rally before supply this week, and then the stronger than expected ISM Non-Manufacturing data," said John Briggs, managing director, markets at RBS in Stamford, Connecticut.
The Institute for Supply Management's index on the U.S. services sector rose to 56.0 from 52.2 in June, signaling ongoing improvement in retail, restaurant and other services industries. Analysts had forecast a July reading of 53.0. The latest ISM services figure matched the level last seen in February and rebounded from a three-year low.
The Treasury Department will sell $32 billion in three-year debt on Tuesday, $24 billion in 10-year notes on Wednesday and $16 billion in 30-year bonds on Thursday. With yields hovering near two-year highs, the upcoming supply might entice income-oriented investors who have stayed on the sidelines.
On the open market, benchmark 10-year notes slipped 10/32 in price to yield 2.64 percent, up from 2.60 percent late on Friday. The 30-year bond was down 24/32, its yield rising to 3.74 percent from 3.69 percent late on Friday.