Treasuries Close Moderately Higher On Disappointing Service Data

(RTTNews) - After ending the previous session modestly lower, treasuries moved higher during trading on Monday on the heels of disappointing service sector data.

Bond prices moved to the upside in early trading and remained firmly positive throughout the session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.4 basis points to 2.961 percent.

The ten-year yield more than offset Friday's 1 basis point gain, pulling back further off last Tuesday's two-year closing high.

The strength among treasuries was partly in reaction to a report from the Institute for Supply Management showing that activity in the U.S. service sector unexpectedly grew at a slower rate in December.

The ISM said its non-manufacturing index edged down to 53.0 in December from 53.9 in November, although a reading above 50 still indicates growth in the service sector. With the drop, the index fell to its lowest level since hitting 52.8 in June.

The modest decrease came as a surprise to economists, who had been expecting the index to creep up to a reading of 54.8.

The unexpected decrease by the headline index was partly due to a downturn by new orders, as the new orders index tumbled to 49.4 in December from 56.4 in November.

However, Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, said, "Despite the substantial decrease in the New Orders Index, respondents' comments predominately reflect that business conditions are stable."

Traders seemed to shrug off a separate report from the Commerce Department showing that factory orders rose by more than expected in November.

The report said factory orders increased by 1.8 percent in November following a revised 0.5 percent decrease in October. Economists had expected orders to rise by 1.6 percent.

The factory orders report may have been viewed as old news considering that the data comes from before the Federal Reserve's recently announced decision to begin scaling back its asset purchases.

Trading on Tuesday could be impacted by the release of a report on the U.S. trade balance as well as the results of the Treasury Department's auction of three-year notes.