US Treasuries slump on higher risk appetite, Yellen speech eyed

The US Treasuries slumped on Monday as investors cooled on safe-haven instruments amid gains in riskier assets including crude oil and equities. Moreover, investors await Federal Reserve Chair Janet Yellen's speech at 16:30 GMT in an attempt to estimate the Fed's likely next step to raise the interest rate. Meanwhile, the yield on the benchmark 10-year Treasury note rose 2 basis points to 1.723 percent and short-term 2-year bonds yield jumped 2 basis point to 1.803 percent by 12:30 GMT.

On Friday, the US Treasuries saw a sharp rally across the curve, following the weaker than expected May employment report. The 2-Year yield saw considerable downward pressure on the session, breaking below 0.80 percent mark, alongside a similar decrease in the 10-Year yield, pushing down to around 1.70 percent.

The US May Labor Department employment situation report revealed overall only +38k increase in non-farm payrolls, well below market expectations for a +160k increase, as compared to the revised +123k reading in April (previous was +160k). This comes alongside a considerable decrease in the unemployment rate to 4.7 percent, below expectations for a 4.9 percent result, down from 5.0 percent. Average hourly earnings increased +0.2 percent m/m, from revised +0.4 percent m/m reading seen in April, previous was +0.3 percent m/m.

Additionally, average weekly hours held unchanged at 34.4 in May. Overall, weaker net revisions were seen in March and April (net -59k revisions).

A Reuters poll of primary dealers on the Fed taken after Friday's employment report find the firms' economists putting a median probability of 5 percent on a rate hike at next week's FOMC meeting and 34 percent at the July meeting. Their median midpoint for the Fed Funds rate at year-end is 0.63 percent (i.e. one 25 basis point hike).

In addition, the US bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Federal Reserve's target. Today, crude oil prices jumped more than 1 percent, supported by the softer dollar after last week's well-below-forecast US jobs report. The International benchmark Brent futures rose 1.13 percent to $50.21 and West Texas Intermediate (WTI) jumped 0.88 percent to $49.05 by 09:10 GMT.

On weekends, the Fed's Mester said that weak employment number hasn't fundamentally changed her views on US outlook and focus of FOMC is US economy, Brexit could unsettle markets and that we will take account of. She further added that direct effect of Brexit on US economy likely to be small and she still believe that a gradual pace of rate hikes appropriate. Said inflation is still low but moving towards our goal and confident that growth is picking up. The economy is at full employment and she does not think that the Fed is behind the curve, risks of waiting too long could mean having to hike aggressively later on, she added.

Markets now look ahead to a relatively light week of data this week, largely highlighted by Michigan consumer sentiment on Friday. However, the event of the week may likely turn out to be commentary from Fed Chair Yellen on Monday, which could serve to shine the light on Fed thinking in the wake of the May employment report. Additionally, markets receive 3-Year Note, 10-Year Note and 30-Year Bond auctions on Tuesday, Wednesday and Thursday, respectively.

Meanwhile, S&P 500 Futures rose 5.75 points to 2,103.5 by 12:40 GMT.