U.S. Treasuries fell in response to the latest data about the economy, which dampened expectations that the
Federal Reserve will cut short-term interest rates by 50 basis points tomorrow.
The two-year Treasury note, which reacts most dramatically to changes in monetary policy, recently lost 4/32 to 100 14/32, raising the yield, which moves in the opposite direction of the price, to 4.002%. The 10-year benchmark note lately fell 10/32 to 98 23/32, yielding 5.224%. The 30-year Treasury bond slipped 28/32 to 96, moving the yield up to 5.654%.
"It was the straw that broke the camel's back," said Dave Winter, a bond trader at
Zions First National Bank
, referring to the
durable goods orders data for May,
released this morning. "The market's readjusting, as it had been ignoring strong economic info and focusing on weak news.
Now the market figures the Fed is going to go 25 basis points."
Durable goods orders, a key gauge of the health of the factory sector, rose 2.9% in May, and 2.7%, excluding transportation. Economists expected a 0.3% decline. Manufacturing has been one of the main pockets of weakness in the economy, but today's numbers could indicate a turn in the slowing sector. Meanwhile, the
consumer confidence index rose to 117.9 in June from 116.1 in May. New home sales also strengthened in May.
According to the
fed funds futures contract for July, the market is now pricing in about a 42% chance for a 50-basis-point cut tomorrow, down from about a 55% this morning.
"Today's data is supportive evidence that the economy is close to bottoming and not getting any worse," said Richard Gilhooly, senior bond strategist at
Paribus Capital Markets
. "But obviously they still have to do at least 25 basis points. And if they do 25, they're still going to leave open the door for another quarter-point cut."