Bloomberg News

Treasuries Erase Gains as U.S. Factory Index Exceeds Forecast

September 01, 2011

Sept. 1 (Bloomberg) -- Treasuries erased gains after a report showing unexpected growth in manufacturing industries bolstered optimism about economic growth.

U.S. 10-year yields fell earlier, adding to the biggest decline last month since December 2008, after reports showed U.S. initial jobless claims were almost as forecast last week and European manufacturing shrank more than initially estimated in August. Minutes from the Federal Reserve’s Aug. 9 meeting released Aug. 30 showed some policy makers urged action to stimulate a sluggish economy, leading to speculation the central bank may consider additional measures to boost the economy.

“The ISM came in extremely strong,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “The bond market was expecting a much worse number. It caught a lot of people offsides. We’re seeing some very strong selling.”

Yields on 10-year notes rose four basis points, or 0.04 percentage point, to 2.26 percent at 10:10 a.m. in New York, according to Bloomberg Bond Trader prices. The price of the 2.125 percent security maturing August 2021 fell 11/32 or $3.44 to 98 25/32. The yield fell earlier as much as four basis points.

Yields declined 57 basis points last month, the most since a 71 basis-point drop in December 2008. The yield slid to a record low of 1.97 percent on Aug. 18.

The Institute for Supply Management’s factory index fell to 50.6 in August from 50.9 the prior month, the Tempe, Arizona- based group said today. A reading of 50 is the dividing line between expansion and contraction in manufacturing.

Economists projected the gauge would drop to 48.5, according to the median forecast in a Bloomberg News survey. Estimates of the 80 economists ranged from 44 to 52. A reading above 42.5 generally indicates an expansion in the overall economy.

--Editors: Paul Cox

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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