Bonds fall on pickup in global manufacturing

By John Parry

NEW YORK (BestGrowthStock) – Treasury debt prices fell on Wednesday as surprisingly strong U.S. and Chinese manufacturing data assuaged some concerns about the health of the global economy and whetted investors’ appetite for riskier assets.

As money flowed out of safe-haven government debt into stocks, a steep sell-off in Treasuries pushed the 30-year bond’s price down by three points.

The key catalyst for selling was the widely watched U.S. ISM manufacturing index, which rose to 56.3 in August, beating economists’ consensus forecast for a fall to 53.0.

“With the Institute for Supply Management (report) not only showing a gain from July but completely confounding the consensus of economists for a sharp drop, all of a sudden the economic world is not coming to an end, and that is sharpening the appetite for risk assets,” said David Dietze, chief investment strategist at Point View Financial Services, Summit, New Jersey.

Wednesday’s economic reports go against recent U.S. housing and employment data that apparently signaled the pace of U.S. economic growth continued to slow markedly.

Some analysts cited market chatter about possible reallocation among longer-term investors into stocks and out of government bonds.

The benchmark 10-year Treasury note’s price, which moves inversely to its yield, dropped more than one point for a yield of 2.60 percent, versus 2.54 percent before the manufacturing report and 2.48 percent late on Tuesday.

The 30-year Treasury bond price tumbled three points for a yield of 3.68 percent.

Data earlier on Wednesday showing a surprise loss of U.S. private sector jobs lent only a fleeting bid to Treasuries.

“Technically we found a range in notes and bonds and a floor on yields,” said Jim Barrett, senior market strategist with Lind-Waldock in Chicago.

“This news just wasn’t negative enough,” Barrett said. “The backdrop with the recent data has been so negative anyway so the market is ignoring it,” he added.

Analysts are citing the 2.67 percent area for the benchmark 10-year note’s yield as a near-term upper technical level and between about 2.50 and 2.40 percent as a key lower area.

However, longer term, some prominent bond analysts are betting that benchmark yields will fall steeply from current levels as the economy loses momentum heading into next year.

The 10-year U.S. Treasury note’s yield is expected to fall below historic lows of 2 percent in the first quarter of 2011 because of weak economic growth, Bank of America Merrill Lynch Global Research said on Wednesday.

(Additional reporting by Chuck Mikolajczak and Richard Leong; Editing by Padraic Cassidy)

Bonds fall on pickup in global manufacturing