Treasuries gapped lower Monday as stocks continued to build on their recovery story, declining deeper following the latest bullish data chapter.
Prices opened on the week side, bracing for May ISM, and suffered further on the 49.4 print (up from 45.4) that was a shade above consensus, though still in negative territory below 50.0. Sub-components new orders (51.9), production (51.5) were firmer, though employment still lagged (43) and prices paid fell sharply (51.5 vs 63.5) on energy effects. Construction spending fell 0.3% in April.
Wall Street also gathered itself with a brief run back above 9000 in the Dow, helped higher by cancer drug hopes at leading biotechs and software megamergers, before profit-taking set in. Likewise, the September bond stumbled over a point lower and broke below 118-00, before finishing 30/32 down at 118-09.
The declines were led by the belly and back-end (5-years, 10-years, 30-years), hence the curve steepened with the 2-year note and 30-year bond spread backing 6 basis points higher to +310 basis points. Large call rolls on September 10-years featured, totaling over 20,000 on the day.
The dollar suffered from confusion over strong dollar policy after President Bush apparently said that Greenspan was in charge and not the Treasury.
Traders anxiously await key data scheduled for release later in the week, especially payrolls on Friday. Tomorrow's line up includes vehicle sales, the weekly chain store sales, and Challenger layoffs. Vehicle sales will be an important gauge of consumption. MMS looks for sales to moderate in May to a 12.8 million pace from 13.0 million. A much stronger-than-expected pace would add to recent enthusiasm that the economy is picking up steam.