Treasuries Move Modestly Lower After Seeing Initial Strength

(RTTNews) - After failing to sustain an initial move to the upside, treasuries moved modestly lower over the course of the trading session on Monday.

Bond prices pulled back off their highs of the session and into negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged up by 1.7 basis points to 2.866 percent.

The pullback by treasuries came following the release of a report from the Institute for Supply management showing growth in U.S. manufacturing activity unexpectedly accelerated in the month of June.

The ISM said its purchasing managers index climbed to 60.2 in June after rising to 58.7 in May, with a reading above 50 indicating growth in manufacturing activity. Economists had expected the index to edge down to 58.4.

"The increase in the ISM manufacturing index in June is a clear sign that, for now at least, the strength of the domestic economy is more than offsetting any increased uncertainty on trade policy," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "However, with the dollar appreciating by 6% since April, global growth slowing and retaliatory tariffs just beginning to bite, the sector looks unlikely to fare so well for long."

Treasuries initially benefited from lingering trade concerns as tariffs on $34 billion worth of Chinese imports to the U.S. and a matching $34 billion worth of U.S. exports to China are due to take effect on July 6th.

Adding to the concerns, news website Axios obtained a leaked draft of bill ordered by President Donald Trump that would declare America's abandonment of fundamental World Trade Organization rules.

The bill, known as the United States Fair and Reciprocal Tariff Act, essentially provides Trump a license to raise U.S. tariffs at will, without congressional consent, Axios said.

"It would be the equivalent of walking away from the WTO and our commitments there without us actually notifying our withdrawal," a source familiar with the bill told Axios.

Nonetheless, the source noted Congress would never give the president the authority, and a White House spokeswoman told Axios the administration does not have actual legislation it is preparing to rollout.

A previous report from Axios said Trump has repeatedly told top White House officials he wants to withdraw the United States from the World Trade Organization.

Additionally, the European Commission has warned the Trump administration that imposing tariffs on cars imported from Europe will harm trade, growth and jobs in the U.S. and abroad.

Trading activity is likely to remain subdued on Tuesday, as the markets are due to close earlier than normal ahead of the July 4th holiday.

The Commerce Department's report on factory orders in the month of May could attract some attention, with orders expected to come in unchanged.