NEW YORK (CNN/Money) -
Treasury prices dropped Tuesday, pressured by strong economic signs and soaring oil prices, while the dollar finished mixed against the euro and the yen.
At about 3:30 p.m. ET, the benchmark 10-year Treasury note fell 9/32 of a point to 100-12/32 to yield 4.7 percent, up from Friday's 4.65, and the 30-year bond lost 24/32 of a point to 99-22/32 to yield 5.39 percent, up from Friday's 5.34. Bond prices and yields move in opposite directions.
The two-year note dipped 3/32 of a point to 99-26/32 to yield 2.59 percent, and the five-year note dropped 5/32 of a point to 100-5/32 to yield 3.84 percent.
Treasury prices slid as the economy showed signs of strength. The Institute for Supply Management (ISM) said its index of manufacturing activity rose to 62.8 in May from a revised 62.4 the prior month. Economists, on average, had expected an ISM index of 61.5, according to Briefing.com.
Strong construction spending figures also pointed to an improving economy, with April spending up 1.3 percent from March. Analysts polled by Reuters had expected a much smaller 0.4 percent increase.
Both sets of data reinforced expectations that the Federal Reserve will hike short-term interest rates to cool a growing economy, bad news for bond investors as higher rates erode the value of Treasurys.
Investors now await Friday's May unemployment and payroll growth figures to be released by the Bureau of Labor Statistics. Economists forecast that 216,000 new jobs were added in the month, according to Reuters. An even bigger gain could stir concerns the Fed will raise rates by more than currently expected when it meets in June.
Traders also kept watch on higher oil prices, following the weekend attack in Saudi Arabia that left 22 people dead and pushed crude oil prices to a record $42 a barrel Tuesday.
Rising energy costs have mixed implications for bonds. They can fuel inflation, pushing the Fed to raise interest rates, but also act as a tax on consumers and a burden on equities.
Rising oil prices also hit the dollar, which slipped against the euro but gained some ground against the Japanese yen.
"There is widespread bearishness in the market and the key issue is oil prices. The positive impact for the dollar of today's better-than expected U.S. economic data was offset by soaring oil prices off the back of this weekend's news," Michael Woolfolk, senior currency strategist at Bank of New York, told Reuters
At the end of the day Tuesday, the euro bought $1.2230, up from $1.2187 late last Friday, and the dollar bought ¥110.62, up slightly from ¥109.39.
U.S. markets were closed Monday for Memorial Day.
-- from staff and wire reports
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