October 29, 2018 / 2:38 PM / 22 days ago

TREASURIES-Yields rise modestly as U.S. equities recover

NEW YORK, Oct 29 (Reuters) - Yields on U.S. Treasury bonds rose modestly on Monday morning as Wall Street recovered from a dramatic sell-off last week that drove demand for the safe-haven debt.

U.S. equities have been rocked in October as companies reported that tariffs, rising borrowing costs and a slowdown in China hurt earnings in the third quarter and are expected to do the same in the fourth.

The Dow Jones Industrial Average and the S&P 500 opened higher after having returned to negative territory for the year on Friday.

However, “this is not simply a rebound in equities,” said John Herrmann, director of U.S. rates strategies at MUFG Securities in New York.

“Last week is over. It is history, and markets are looking toward first-order economic statistics: both ISM surveys, ADP and the non-farm payrolls report,” said Herrmann. “People’s expectations for those reports this week are pretty upbeat.”

ADP private payrolls will be reported on Wednesday, the PMI Manufacturing Index and the ISM Manufacturing Index on Thursday, and U.S. non-farm payrolls on Friday.

Hurricane Florence in September and Hurricane Michael in October likely affected payrolls data, with the bounce back in October following Florence partially offset by the effects of Michael. Still, analysts projected that non-farm and private payrolls will have increased for October.

Wages, which have been slow to grow despite a record low unemployment rate this year, are also forecast to gain. Analysts at Jefferies projected a 0.2 percent month-on-month increase in average hourly earnings and a year-over-year increase of 3.2 percent. Year-on-year average hourly earnings have not risen by 3 percent or higher since April 2009.

U.S. consumer spending rose for a seventh straight month in September, but income recorded its smallest gain in more than a year amid moderate wage growth, suggesting the current pace of spending was unlikely to be sustained, the Commerce Department reported on Monday.

The market impact from the report was limited, however, as the average monthly figures were included in the gross domestic product report released on Friday.

On Wednesday, the Treasury supply for three-year notes, 10-year notes and 30-year bonds will be announced. These issues are expected to increase by $2 billion in the three-year and $1 billion in the 10- and 30-year.

The 10-year note was at 3.10 percent, up about 2 basis points from the open. The 30-year bond made similar gains on the day, at 3.33 percent. The short end of the curve sold off slightly less, with the two-year note at 2.83 percent, up 1.7 basis points from the open. (Reporting by Kate Duguid; Editing by Jeffrey Benkoe)

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