U.S. Treasurys yields rose on Tuesday after uncertainty as to whether the European Central Bank would announce more stimulus measures at a meeting this week led traders to take profits from last month's rally.
Traders reevaluated expectations that the ECB, in an effort to ward off deflation, might embark on purchases of asset-backed securities. Doubts as to whether the ECB will hint at any further action at its Thursday meeting drove German government bond and Treasurys yields higher.
"There is a little bit more of a reality check of what that actually would look like, how you would implement it, and then down the road how you would exit from that," said George Rusnak, managing director of global fixed income for Wells Fargo Private Bank in Princeton, New Jersey, in reference to the potential ECB stimulus.
German Bund yields plunged to record lows last week, pulling Treasurys yields lower with them, following comments from ECB President Mario Draghi at a central bank symposium in Jackson Hole, Wyoming, hinting at the potential for more stimulus.
Analysts said strong U.S. manufacturing and construction spending data reinforced the selling pressure on safe-haven Treasurys.
Financial data firm Markit said its final U.S. Manufacturing Purchasing Managers Index rose to 57.9 in August from 55.8 in July, marking its highest level since April 2010. The Institute for Supply Management said its index of national factory activity rose to 59.0, marking its highest level since March 2011.
U.S. construction spending rose 1.8 percent in July, according to the Commerce Department. That topped expectations for a 1.0 percent increase, according to a Reuters poll.
"This is the first look for August data, and it's pretty positive," said Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch in New York. "It does create a little more confidence in the economy."
U.S 10-year Treasury notes were last down 20/32 in price to yield 2.42 percent, up from a yield of 2.35 percent late Friday. Thirty-year Treasury bonds were last down 1-18/32 in price to yield 3.17 percent, up from 3.09 percent late on Friday.
The profit-taking, particularly on longer-dated Treasurys, followed a rally in August. The Barclays U.S. Treasury: 25 plus-year index, which has outperformed shorter-dated Treasurys this year, gained 4.4 percent, marking its best month since January.
In addition to the ECB meeting, analysts said traders were looking ahead to Friday's U.S. employment data. U.S. employers are expected to have added 225,000 jobs in August, according to a Reuters poll, a strong figure which could push forward expectations for the first Fed rate hike.
A strong nonfarm payrolls figure could increase the chance of a Fed rate hike in the first quarter of 2015, said Rusnak of Wells Fargo.
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