Yields Scoot Lower Again on More Slowdown Evidence - TheStreet

Treasury prices ran up for a second consecutive day after a key manufacturing indicator dropped, adding to the case that economic growth is slowing after 175 basis points worth of interest-rate hikes by the

Fed. Yields fell to one-month lows, and the 30-year bond's yield breached 6%.

The benchmark 10-year Treasury note gained 22/32 to 102 7/32, dropping its yield 9.7 basis points to 6.188%, the lowest since April 26. Shorter-maturity yields fell somewhat less. The two-year note, for example, rose 5/32 to 100 1/32, cutting its yield 8.9 basis points to 6.595%.

The 30-year bond gained 24/32 to 104 6/32, dropping its yield 5.3 basis points to 5.947%, the lowest since April 28. And at the

Chicago Board of Trade

, the September

Treasury futures contract added 25/32 to 96 13/32.

The chief catalyst for the move was the

Purchasing Managers' Index

. Expected by economists polled by

Reuters

to rise to 55.3 in May, it fell to 53.2, the lowest since April 1999.

Considering that a reading of 53.2 is consistent with an above-trend

GDP

growth rate of about 4%, the magnitude of the rally was surprising to some.

"What the Street is counting on is that the economy really is slowing by a significant amount, and so the Fed is either not going to need to tighten further, or what they're going to need to do is extremely limited," said Maryann Hurley, a bond trader at

D.A. Davidson

in Seattle. But while growth is clearly slowing, "it may be premature to say nothing further is needed," Hurley said. "We need to see weaker numbers going forward, consistently. We've had some headfakes before. And these numbers are slowing from extremely strong levels."

She cited as an example

yesterday's

new homes sales

report, which triggered a rally in the bond market even though it slowed to a pace that is very fast by historical standards.

"We may be getting ahead of ourselves at these levels," Hurley said, pointing out that the two-year note's yield sits just 10 basis points above the current

fed funds rate. "The one thing I know for sure is that the Fed is not going to ease," she said. "That makes things look expensive in here."

The bond rally was all the more surprising in light of today's stock market action, which saw all the major proxies take big strides. Recently, big stock rallies have sometimes given bond investors reason to sell, on the theory that rising stock prices contribute to too-fast economic growth by emboldening consumers to spend.

But Craig Simmons, principal at

Williams Capital Group

, said the rally appropriately reflected the expectation that the economy is in the process of slowing, and that additional action by the Fed on rates will be limited. "The risk now is that the Fed could overshoot," he said.

As for today's

Nasdaq Stock Market

rally, Simmons said he doesn't expect much of an effect on future economic activity. "Trillions have been wiped out, and people who've lost on the way down don't necessarily recover on the way up," he said.

Economic Indicators

In other economic news, the weekly count of

initial jobless claims

rose to 286,000 from 285,000, indicating a very slight slackening of labor market conditions.

And

construction spending

slid 0.6% in April, its first decline in eight months. The year-on-year growth rate eased to 7.0% from 7.2%.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 108.50 yen, up from 107.65. The euro was worth $0.9310, down from $0.9377. For more on currencies, please take a look at

TSC's

Currencies column.

Crude oil for July delivery at the

New York Mercantile Exchange

rose to $30.14 a barrel from $29.01.

The

Bridge Commodity Research Bureau Index

rose to 223.39 from 223.25.

Gold for August delivery at the

Comex

rose to $275.40 an ounce from $274.80.