October 3, 2016 / 2:56 PM / a year ago

TREASURIES-Yields rise on strong U.S. manufacturing data

* Friday employment data for September in focus
    * Fed seen likely to raise rates in December
    * Deutsche Bank concerns remain a focus

    By Karen Brettell
    NEW YORK, Oct 3 (Reuters) - U.S. Treasury yields rose on
Monday after stronger-than-expected manufacturing data for
September boosted expectations of economic growth before
Friday's highly anticipated jobs report.
    Investors are looking ahead to the employment report for
further clues on when the Federal Reserve is likely to raise
interest rates.
    The odds of a rate hike this year ticked up after Monday's
data. Traders are now pricing for a 62 percent chance of a hike
in December, and a 11 percent chance of a rate increase in
November, according to CME Group's FedWatch Tool.
    "A strong number tells the market that the Fed might
actually go," said Gennadiy Goldberg, interest rate strategist
at TD Securities in New York. "If the week stays like this then
December might get more priced in."
    Benchmark 10-year notes were last down 5/32 in
price in price to yield 1.62 percent, up from 1.61 percent late
on Friday. 
    Treasury prices had rallied since the Fed left rates
unchanged at its meeting concluding on Sept. 21, but signaled
that it could still tighten monetary policy by the end of the
year. 
    Fed Chair Janet Yellen said she would expect to see an
increase in the central bank's benchmark federal funds rate this
year, depending on jobs market recovery and barring economic
disruptions.
    "The focus is going to be on employment this week," said Dan
Mulholland, head of Treasuries trading at Credit Agricole in New
York.
    Employers are expected to have added 170,000 jobs in
September, according to the median estimate of 59 economists
polled by Reuters. 
    Focus will also remain on Deutsche Bank as the German bank
negotiates a settlement with U.S. authorities demanding a fine
of up to $14 billion for mis-selling mortgage-backed securities.
 
    Reports that Deutsche may reach a much lower settlement with
the U.S. had sparked higher risk appetite on Friday, and reduced
demand for U.S. Treasuries, which are typically in demand for
quarter-end rebalancing.
    "That muted the month-end trade to some extent," said
Mulholland.

 (Editing by Meredith Mazzilli)

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