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TREASURIES-Yields rise after strong U.S., global data
January 3, 2017 / 4:33 PM / 9 months ago

TREASURIES-Yields rise after strong U.S., global data

* Strong U.S. economic data boosts Treasury yields

* Positive data from China, Europe helps global yields

* ‘Rate-locking’ activities also weigh on Treasury prices (Recasts, updates prices, adds comment, table, byline)

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 3 (Reuters) - U.S. Treasury debt yields rose on Tuesday after three days of losses, bolstered by positive U.S. data and upbeat economic reports from China and Germany.

It was a day of risk-taking in the market in the first trading session of the year, as investors bought stocks and oil and sold sovereign bonds such as U.S. Treasuries and German Bunds.

“Global yields in general are higher as data overall has been relatively positive,” said Gennadiy Goldberg, interest rates strategist, at TD Securities in New York.

“Also we really rallied into the year end, which may have been some last-minute buying. But there are more people back now, so the market is getting back into place,” he added.

Tuesday’s U.S. data showed factory activity accelerated to a two-year high in December amid a surge in new orders and employment. Other figures showed construction spending hit a 10-1/2-year high in November.

Chinese data indicating the fastest factory output growth in six years in the world’s second-largest economy along with firmer German and French inflation figures provided a broad boost to global yields.

TD’s Goldberg said Treasury debt prices also fell as Wall Street dealers looked to lock in borrowing costs for corporate bonds they are underwriting in what is known as rate-locking. January is historically a month with a heavy corporate issuance calendar.

As part of underwriting, a dealer sells Treasuries as a hedge to lock in the borrowing cost on the bond issue before the deal is completed. Once the bond is sold, the dealer buys back Treasuries to exit the rate lock.

Typically, market moves stemming from supply hedging are temporary and not indicative of market sentiment.

In late morning trading, the U.S. 10-year note was down 14/32 in price to yield 2.484 percent, compared with 2.432 percent late on Friday.

U.S. 30-year bond prices dropped 18/32, yielding 3.082 percent, up from Friday’s 3.051 percent.

U.S. two-year note prices were down 2/32, with a yield of 1.242 percent, compared with 1.198 percent on Friday.

U.S. Treasuries were the worst performing fixed-income asset in 2016, far underperforming both U.S. investment grade and high-yield corporate bonds as well as federally backed mortgage securities.

Treasuries posted a loss of 3.967 percent in the fourth quarter, their poorest performance in the history of the Merrill Lynch Treasury index. A comparable measure from Bloomberg Barclays indexes showed Treasuries had their worst showing since 1980. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Dion Rabouin; Editing by Chizu Nomiyama and Meredith Mazzilli)

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