October 3, 2016 / 7:11 PM / a year ago

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

(Adds details on factory data, updates prices)
    * U.S. factory sector expanded in September
    * Friday employment data for September in focus
    * Deutsche Bank stability concerns remain

    By Karen Brettell
    NEW YORK, Oct 3 (Reuters) - U.S. Treasury yields rose on
Monday after data showed that U.S. factories ramped up activity
in September, boosting expectations of economic growth before
Friday's highly anticipated jobs report.
    The Institute for Supply Management (ISM) said on Monday its
index of national factory activity rose to 51.5 from 49.4 the
prior month, indicating that the sector is now expanding.
 
    It comes as investors are focused on Friday's employment
report for further clues on when the Federal Reserve is likely
to raise interest rates.
    "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."
    The odds of a rate hike this year ticked up after Monday's
factory 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.
    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 rallied after 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 and Alistair Bell)

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