U.S. Treasury Prices Pull Back After Strong ISM Data

By Akane OtaniFeaturesDow Jones Newswires

U.S. government bond prices fell Wednesday after data showed a stronger-than-expected pickup in service-sector activity.

The yield on the benchmark 10-year U.S. Treasury note was recently at 2.339%, according to Tradeweb, compared with 2.332% on Tuesday. Yields rise as bond prices fall.

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Bond yields fell overnight, then climbed after data showed service-sector activity across the U.S. accelerated in September.

The Institute for Supply Management's index for nonmanufacturing activity, which tracks industries including health care, finance, agriculture and construction, rose to 59.8 last month -- the highest reading since August 2005. Economists surveyed by The Wall Street Journal had expected a reading of 55.2 for September.

The upbeat data softened demand for Treasurys, which tend to rise when investors are less confident about the economic environment.

Earlier, a report showed hiring at private U.S. employers grew less than expected in September. Firms across the country added 135,000 workers to their ranks last month, according to payroll processor Automatic Data Processing Inc. and forecasting firm Moody's Analytics, compared with the 150,000 economists had expected.

Some analysts cautioned against putting too much stock in the ADP reading. The data can be volatile, they noted, and not always a reliable predictor of the U.S. Bureau of Labor Statistics' widely watched monthly jobs report, which investors will see Friday.

Meanwhile, trading in the Treasurys market is likely to remain muted, investors and analysts said.

Bond yields have remained in a relatively narrow range in recent months, even as investors have contended with the prospect of a tax-cut package and a potential change in leadership at the Federal Reserve next year.

One of the possible candidates, former Fed governor Kevin Warsh, is seen by some investors as likely to be more hawkish than current Fed Chairwoman Janet Yellen -- something that could put pressure on government bonds if he is appointed.

Yet bonds have made few big moves this week, with the yield on the 10-year U.S. Treasury note little changed from where it settled Friday at 2.328%.

"Everyone is puzzled by this," said Zhiwei Ren, a managing director and portfolio manager at Penn Mutual Asset Management, of the bond market's lull. "You go to conferences and everyone is asking when we're going to see volatility in the rates market again."

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

October 04, 2017 11:14 ET (15:14 GMT)