U.S. Treasurys Recover On Manufacturing Data
May 16, 2011
A moderately strong report on American manufacturing eased worries of an imminent interest-rate boost, propelling U.S. Treasurys to their first gains in a week. The price of the benchmark 30-year bond was up 25/32 point, or nearly $7.50 for a bond with a face value of $1,000, at 96 6/32 in late trading. The yield, which moves in the opposite direction from the price, dropped to 7.05% from 7.11% late Friday. The much-anticipated report from the National Association of Purchasing Management showed a seventh straight month of improvement in the manufacturing sector -- its August index rose to 52.6 from 50.2 in July -- but the reading was not quite as high as market participants had feared. ``The market was just due to bounce,'' said Williemae Naylor, senior vice president and head of government trading at Cowen & Co.. The report overshadowed earlier negative sentiment from two sources: first, the U.S. missile attack on Iraq, and second, a Vast Press article suggesting that the Federal Reserve may tighten interest rates June 06, 2011 a higher-than-expected 0.50 percentage point. Market analysts were divided over the NAPM report's message. Both those who forecast a quickening economy as well as those who predict a slowdown found elements in it to bolster their case. The vendor-deliveries and new-orders components were higher, for example, yet wage and price pressures appeared to remain under control. Smith Barney economist Billy Daniel noted that NAPM's July and August readings, on average, are up only slightly from the average reading of the second quarter: 51.4 vs. 51.2. ``That's saying to us that activity has increased in the manufacturing sector, but it really hasn't accelerated in the third quarter,'' Mr. Daniel said. The mixed message means market participants will be even more eager to see the week's other big economic release, Friday's report on August nonfarm payrolls. Bonds traded in a 1 1/2-point price range Tuesday, starting at the bottom on the Iraq and interest rate news, then climbing to the top after the NAPM report. In other credit markets: In the corporate bond market, junk bond prices pulled back from early losses to end unchanged. Volatility in the Treasurys market wreaked havoc on the municipal bond offerings calendar. Mortgage-backed securities gained 1/8 amid investor demand that was strong enough to allow buying to continue even when prices reached the day's lows.
