By Min Zeng
U.S. Treasurys were off to a tepid start after the long weekend as an upbeat business spending release sapped demand for safe assets.
Looming new debt sales also weigh down on bond prices. A $31 billion sale of two-year notes is due at 1 p.m. Tuesday, the first leg of this week's $108 billion new Treasury notes offerings.
In recent trade, the 10-year Treasury note was 3/32 lower, yielding 2.546%, according to Tradeweb. Bond prices and yields move in opposite direction.
Bond prices slid after orders for big-ticket goods from U.S. factories rose by 0.8% in April. Economists had expected a decline of 0.7%.
The rise was driven by a 39.3% surge in orders for defense-related capital goods, the largest one-month increase since December 2012, and a 2.3% increase in orders for transportation equipment. Details of the report pointed to caution. Excluding transportation, durable-goods orders rose only 0.1% in April. Excluding defense, orders fell 0.8%.
The report did nothing to settle the debate over the pace of U.S. economic growth after a slowdown during the first quarter. Many economists have blamed harsh winter weather for the recent doldrums and they continue to believe the pace of growth would pick up speed later this year.
The health of the economy is closely watched by bond investors because it is a key driver to influence the timing of an interest-rate increase by the Federal Reserve. Bond traders and investors generally expect a rate increase won't come until the second half of 2015.
Signs of uneven growth and contained inflation have sent the 10-year yield lower from about 3% at the start of the year. The yield touched 2.472% during the May 15 session, the lowest since Oct. 30.
Some investors and traders deem the sharp decline in the yield overdone. Sellers have tended to emerge in recent days around 2.5%, traders said.
For the yield to drop much further, it needs to break 2.47%, a low of last October and a level closely watched by chartists who trade bonds based on historical patterns not economic fundamentals.
Traders expect the 10-year Treasury yield to gyrate between 2.47% and 2.7% in the near term, especially ahead of the nonfarm jobs report for May that is due in early June.
Bond bears need persistent data to show stronger growth or higher inflation to send the 10-year yield to 3% again, traders said.
Many big banks still believe bond yields will rise later this year. Goldman Sachs Group Inc. expects the 10-year yield will rise to 3.25% at the end of this year. Morgan Stanley expects a 3.3% yield.
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