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Treasuries higher despite strong data

February 06, 2007 | Financial Times

US Treasuries pushed higher on Monday, driven by the bullish sentiment from last week’s weaker-than-expected data on manufacturing activity and the US labour market.

Bond prices rose in spite of a set of strong data on Monday. The Institute for Supply Management’s service sector activity index showed an unexpected jump to an eight-month high of 59.0 in January, from 56.7.

However, some analysts said that some components of the survey were weak.

“About the only useful part of the survey is the employment index, which has a good correlation with payrolls in the service sector,” said Paul Ashworth, senior US economist at Capital Economics.

“Unfortunately, the employment index fell to an 11-month low of 51.7, from 53.2. In addition, since the new orders index edged down to 55.4, from 55.6, we would have to conclude that this report is a negative for the economic outlook.”

By late afternoon in New York, the yield on the two-year US Treasury was down 0.8 basis points at 4.929 per cent and the 10-year Treasury was yielding 4.812 per cent, down 1.5bp.

Eurozone government bonds took their cue from the stronger US market, putting aside service-sector data for the region that also came in above consensus expectations.

The yield on the two-year Schatz fell 1.7bp to 3.888 per cent while the 10-year Bund lost 2.1bp to 4.036 per cent.

UK gilt prices were mixed, and shorter-dated bonds were under pressure in spite of data showing the UK’s service sector grew more than expected last month.

Some investors were nervous ahead of an interest rate decision this week by the Bank of England, which has surprised the markets in the past with unexpected increases.

The yield on the two-year gilt added 1.3bp to 5.524 per cent, the 10-year gilt yield fell 1.5bp to 4.990 per cent.

Prices of Japanese government bonds edged up in response to a drop in share prices, but the price increase was very modest given the day’s sharp fall in the Nikkei. The yield on the 10-year inched down only 1bp to 1.715 per cent.


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