Treasuries Pull Back Further Off Recent Highs On Manufacturing Data

(RTTNews) - Treasuries moved notably lower over the course of the trading day on Monday, pulling back further off their recent highs.

After seeing initial weakness, bond prices saw further downside in morning trading before moving roughly sideways in the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, advanced by 7.7 basis points to 2.534 percent.

With the increase on the day, the ten-year yield added to the modest gains posted in the two previous sessions, climbing further off the eleven-month closing low set last Wednesday.

The early weakness among treasuries was partly due to the release of the results of a survey by Markit and HSBC showing that Chinese manufacturing activity expanded at faster rate in May.

The report showed that the Chinese manufacturing purchasing managers index rose to 50.8 in May from 50.4 in April, exceeding the consensus estimate of 50.6 and signaling the fastest rate of growth in five months.

Treasuries initially regained some ground following the release of the Institute for Supply Management's manufacturing report but moved back to the downside after the group corrected the data to show faster growth in the sector.

The revised report showed that the ISM's purchasing managers index inched up to 55.4 in May from 54.9 in April, with a reading above 50 indicating growth in the manufacturing sector. The latest reading was nearly in line with economist estimates of 55.5.

Due to a software error that applied last month's seasonal adjustment factor to this month's data, the ISM originally said the index dropped to 53.2 in May, indicating a slowdown in the pace of growth.

A separate report from the Commerce Department showed that construction spending rose by less than expected in the month of April, although spending still reached its highest annual rate in five years due in part to revisions to the data for the two previous months.

Tuesday morning, the Commerce Department is due to release its report on factory orders in April, although trading activity may be somewhat subdued ahead of the European Central Bank meeting and the monthly U.S. jobs report later in the week.