NAPM Bolsters Bonds After Early Selling

The manufacturing index still shows expansion, but contraction in some key components is keeping the bond market at ease.
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After enduring the worst selloff in two months

Friday, the bond market is hanging in there this morning. Some early weakness eroded once the

National Association of Purchasing Management

index turned out weaker than expected.

But it's not enough of a catalyst to spark a rally. Lately the 30-year Treasury bond was down 1/32 to trade at 94 2/32, after dropping as much as 18/32 in the early going. The yield was steady at 5.66%, though at the lows the yield rose to 5.69%. Analysts attributed the initial selling to follow-through activity from Friday's destruction.

"It switches all the time," said George Simon, market analyst at

A.G. Edwards

. After a bad session, "sometimes the selling carries over, and sometimes it bounces back right away."

The selling that did carry over was limited, however, and was exaggerated by thin volume. European and Japanese markets were closed overnight for holidays. At 10 a.m. EDT

GovPX

reported volume down 37% when compared with the average second-quarter Monday, as $10.3 billion in bonds had changed hands.

The NAPM index, a monthly gauge of manufacturing sentiment, retreated a bit in April, falling to 52.8, compared with 54.3 in March. This index reflects growth in the manufacturing sector when it reads above 50; contraction when below 50. This is the third month in a row the index has read above 50. However, the bond market found this report encouraging, as several important components of the index, including prices paid, employment and inventories, still clocked in below 50.

"The market feels a little better," Simon said. "This is a mild positive. NAPM is still above 50, which means expansion, but it's nothing threatening to the bond market."

The prices-paid component of the index, which tracks what producers are paying for raw materials, rose to 49.9 from 43.2, though a comment from

Barclays Capital

said this increase is largely due to rising oil prices. "It is too early to say that inflation is becoming a concern for the

Fed

," the comment said.