Treasuries drew strength from weak economic reports today, as the market took the latest data as another sign the
Federal Reserve could again ease interest rates during its next meeting later this month.
Prices of both long- and short-term government securities climbed, with the two-year note gaining 5/32 to 100 8/32, lowering the yield to 4.109%. Yields and prices move in opposite directions. The 10-year benchmark note gained 18/32 to 97 31/32, yielding 5.267%. On the long end of the market, the 30-year Treasury bond rose 22/32 to 96 3/32, moving the yield down to 5.646%.
"I think the weakness in the NAPM is driving the market," said David Coard, president and head of fixed income sales and trading at
Williams Capital Group
, referring to the
National Association of Purchasing Management's
purchasing managers' nonmanufacturing index, which fell to 46.6% in May from 47.1% in April. The forecast called for a slight increase to 48%. The May reading marked a record low in the index, which began in 1997. The figure was also the second month in a row that the index has come in below 50%, indicating that softness in manufacturing has spread to the service sector.
Productivity figures for the first quarter also came out this morning. The numbers, which reflect how efficient workers are in the U.S., dropped by 1.2%, compared with the previous estimate of a 0.1% decline. Economists were expecting a drop of 0.7%. The data marked the biggest decrease in productivity since the first quarter of 1993.
Meanwhile, unit labor costs, which represent the cost of workers' output, registered the biggest gain since the fourth quarter of 1990, jumping 6.8%. Economists expected a 5.8% gain.
Short-term Treasuries, which tend to rally in tandem with the lowering of interest rates, have outperformed the longer end of the market, amid the Fed's aggressive easing policy.
Alan Greenspan and the other central bankers have cut short-term interest rates by 250 basis points since Jan. 3. The market is expecting another 25 basis point rate cut when the Fed holds its two-day meeting starting June 26.