By Joseph Adinolfi, MarketWatch

Market is focused on M&A activity, analyst says

Treasury prices fell on Monday, pushing yields higher, as strong corporate earnings, a series of merger announcements, and robust U.S. data supported stocks at the expense of safety plays like government bonds.

U.S. stocks trimmed earlier gains, but remained higher on Monday, with the Dow Jones Industrial Average up 80 points at 18,226.

Shares of T-Mobile gained 5.2% (TMUS) after the mobile carrier said it added 2 million customers in the third quarter.

Over the weekend, AT&T Inc. (T) agreed to buy Time Warner Inc(TWX) for $85 billion in cash and stock, while Rockwell Collins Inc. (COL) said it would pay $6.4 billion for B/E Aerospace Inc. (BEAV). Shares of both AT&T and Time Warner fell on Monday. Meanwhile, B/E Aerospace soared and Rockwell Collins skidded.

"The market is 110% focused on the massive mergers that came through over the weekend," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

The 10-year yield added 3.5 basis points at 1.768%, erasing some of its weekly drop from last week, which was the largest in a month. The gap between the two-year and 10-year Treasury yields widened by about two basis points, with the two-year gaining 1.2 basis point to 0.840%. The 30-year yield climbed to 2.523%, three basis points higher than its late-Friday level.

Strong U.S. data weighed on demand for Treasurys, as investors saw the likelihood of a December interest-rate hike increase marginally. In a preliminary reading, the October Markit purchasing managers index, a monthly survey of certain companies, rose to 53.7. In theory, a higher base rate would push yields higher across the curve, with the largest moves seen in the short end.

"While October's manufacturing figures are nothing to get too excited about, they do at least provide some sense of growth following a drop in September," said Paul Sirani, chief market analyst at Xtrade.

Investors also heard from a bevy of Fed officials. Speaking to an academic group in Fayetteville, Ark., St. Louis Fed President James Bullard argued that the Fed should raise interest rates slowly in the years ahead as the real rate of interest is expected to remain subdued (http://www.marketwatch.com/story/fed-only-needs-to-nudge-up-interest-rates-despite-being-very-close-to-its-targets-bullard-says-2016-10-24). Bullard's comments had little impact on the market, perhaps because his views in favor of rates remaining lower for longer, are already widely known.

New York Fed President William Dudley talked about the need for more transparency in the Treasury market in his opening remarks at the Fed's second annual Treasury conference--but said nothing about his views on monetary policy.

Yields added to their advance after Chicago Fed President Charles Evans said the Fed should tie the pace of future interest-rate hikes to inflation. (http://www.marketwatch.com/story/feds-evans-wants-to-tie-pace-of-interest-rate-hikes-to-inflation-performance-2016-10-24)

(END) Dow Jones Newswires

October 24, 2016 14:22 ET (18:22 GMT)