BOND REPORT: Treasury Yields Gain On Better-than-expected ISM Manufacturing Data

By Sunny Oh Features Dow Jones Newswires

ISM manufacturing index rises to 57.8% in June from 54.9% in May

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Treasury yields climbed after a release of upbeat manufacturing survey hinted at a stronger second-quarter outlook than recent economic reports have implied to government-bond buyers.

The yield for the benchmark 10-year Treasury note gained 3.7 basis points to 2.343%. The 30-year bond added 2.9 basis points to 2.865%, while the 2-year note rose 2.8 basis points to 1.414%. Bond prices move up as yields go down; one basis point is one hundredth of a percentage point.

Monday's swing higher for yields also come amid lower-than-usual trading volume ahead of the July 4th holiday on Tuesday, which has left trading desks lightly staffed. The bond market is slated to close early at 2 p.m. Eastern Monday.

See: July 4th: Which markets are closed? (http://www.marketwatch.com/story/july-4th-which-markets-are-closed-2017-06-30)

Yields moved up sharply after the Institute for Supply Management showed its manufacturing index had jumped to 57.8% in June from 54.9% (http://www.marketwatch.com/story/us-manufacturers-growing-at-fastest-pace-in-three-years-ism-finds-2017-07-03), above the 55.6% forecast of economists surveyed by MarketWatch and the fastest pace in almost three years. A reading of 50 indicates expansion.

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The strong showing helped to ease concerns that weak growth and inflation numbers prevalent in reports over the last few months would persist and dissuade the Fed from holding off on further interest-rate increases. Higher interest rates tend to be bearish for U.S. government paper, pushing prices lower and yields higher.

The manufacturing sector has exhibited signs of resilience. The index's average hovering above 55 since August 2016. But an absence of a pick-up in so-called "hard data" - which shows growth moving at a slow pace - has highlighted the difficulty of relying on optimistic survey data to gauge the economy's direction.

"The divergence between the "hard" and "soft" data cannot persist indefinitely," said Thomas Simons, a senior money market economist at Jefferies, in a note to clients.

Monday's yield climb extends a selloff in government bonds over the past week that dragged the benchmark Treasury yields 20 basis points over higher. European Central Bank and Bank of England policy makers rattled bond markets after they made hawkish statements suggesting a an end to easy-money policies, which have been supportive to stock and bond prices, could occur sooner than later.

Also read: Global bonds sell off as central banks signal end to easy-money era (http://www.marketwatch.com/story/global-bond-yields-march-higher-as-easy-money-era-shows-age-2017-06-29)

The 10-year German government bond rose 1 basis point to 0.478%.

(END) Dow Jones Newswires

July 03, 2017 12:00 ET (16:00 GMT)