Treasury Bonds Pull Back After ISM Data Corrected

By Dow Jones Business News, 
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By Min Zeng

Treasury-bond prices pulled back Monday for a third straight session as upbeat manufacturing releases from the world's two largest economies sapped demand for safe assets.

Monday's price decline signals investors deem the bond market's rally overdone. The yield on the benchmark 10-year note has climbed back after reaching the lowest level in more than six months last week.

In early afternoon trading, the 10-year note was 20/32 lower, yielding 2.528%, according to Tradeweb. When bond yields rise, their prices fall.

The selling was driven by two reports Monday. In China, an official gauge of the nation's manufacturing sector hit a five month high. In the U.S., a similar gauge accelerated to 56 last month from 54.9 in April, after a hiccup of incorrect data that said it fell. A reading above 50 signals expansion.

The reports offered some hopes that the economic growth may be picking up some momentum. An uneven pace of the global economy has been a main factor boosting demand for Treasury bonds and sending yields sharply lower this year.

In an interesting twist Monday, bond prices briefly pared some declines after the Institute for Supply Management initially said the monthly manufacturing index eased to 53.2 last month. But the ISM later Monday corrected the data, saying it actually rose to 56 and that it had cited the wrong seasonal factors in its original release.

"The initially reported decline in the ISM....was just a bad dream, due to a reporting error," said Andrew Grantham, economist at CIBC WM Economics. "At the revised level the factory ISM now adds to signs of a pickup in growth during the second quarter," which is damping fixed income markets.

The bond market's rally has stalled after the 10-year yield touched 2.401% on May 29, its weakest level since late October. The yield has tumbled from about 3% at the start of the year.

Michael Woolfolk, a global-markets strategist at Bank of New York Mellon in New York, said the 10-year Treasury yield below 2.50% "looks very hard to justify" with the Fed ending bond purchases this year and looking to begin raising rates six to 12 months after that amid signs of an improving economy.

Analysts said bond investors would continue to zero in on economic releases for clues on yields.

The key U.S. data point this week is Friday's nonfarm jobs report, an indicator of the health of the labor market that is closely watched by the Fed regarding monetary policy outlook.

Write to Min Zeng at min.zeng@wsj.com


  (END) Dow Jones Newswires
  06-02-141226ET
  Copyright (c) 2014 Dow Jones & Company, Inc.


This article appears in: US Markets , Bonds , Economy , Real Estate

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