USA-BONDS/OUTLOOK (OUTLOOK):TREASURIES OUTLOOK-Yields rise before data, Treasury refunding plans

| Aug 1, 2017, 12:30 AM IST

* Friday’s payrolls data in focus * Treasury to announce quarterly refunding on Wednesday By Karen Brettell NEW YORK, July 31 (Reuters) – U.S. Treasury yields rose on Monday before a heavy week of data, which will culminate in Friday’s employment report for July, and as investors waited on Wednesday’s refunding announcement for the coming quarter. Data on Monday showed that contracts to buy previously owned U.S. homes rebounded in June after three straight monthly declines, while factory activity in the Midwest slowed this month after hitting a three-year high in June. A manufacturing report on Tuesday and services and non-manufacturing data on Thursday will be watched for further indications of the strength of the U.S. economy, with the main economic focus Friday’s payrolls number. “The market is setting up for a lot of risk events later in the week,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. The Treasury Department’s quarterly refunding announcement on Wednesday will also be scrutinized for any indication of how the government plans to make up for a reduction in Federal Reserve bond purchases, once the U.S. central bank begins paring them. Investors will also be focused on whether the government plans to introduce a new ultra-long bond, or revive a 20-year issue, which Treasury Secretary Steven Mnuchin has said would be beneficial for the government’s funding mix. “You could potentially get some move forward on a commitment to ultra-long issuance, or at least some further guidance on what they’re thinking there,” said Blake Gwinn, an interest rate strategist at NatWest Markets in Stamford, Connecticut. Benchmark 10-year notes fell 2/32 in price to yield 2.292 percent, up from 2.287 percent on Friday. Absent a large shock, this week’s economic data is seen as unlikely to sway the Federal Reserve from its likely path reducing its balance sheet in the coming months, even as inflation remains stubbornly low. The Fed said on Wednesday it expected to start winding down its massive holdings of bonds “relatively soon.” Many analysts and traders expect the Fed to announce its balance sheet reduction plans at its September meeting. (Editing by Nick Zieminski and Grant McCool)

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