| Old conundrum, new twist
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| Inverted or flat, the yield curve points to a weaker Federal Reserve, not a downturn. (Full story)
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NEW YORK (CNN/Money) -
Treasury prices retreated Tuesday as a strong reading on the service sector gave investors reason to believe that the economy was on strong footing before Hurricane Katrina, while the dollar advanced.
U.S. markets were closed Monday for Labor Day.
The 10-year note fell 13/32 to 101-9/32, raising the yield to 4.09 percent from 4.04 percent late Friday, while the 30-year note fell 1-3/32 points to 115-16/32, yielding 4.35 percent, up from 4.30 the previous session. Bond prices and yields move in opposite directions.
The two-year note fell 2/32 to yield 3.80 percent and the five-year note fell 7/32, to yield 3.89 percent.
The Institute for Supply Management non-manufacturing index -- a key measure of the strength of the U.S. service sector -- rose to 65.0 in August from July's 60.5. Analysts had predicted a read of 59.5 for the month. (Full story)
"Unfortunately, this is pre-Katrina data and may not reflect what we're likely to see in the next couple of months," Gary Thayer, chief economist at A.G. Edwards & Sons, told Reuters.
The index's jump was enough to offset gains made earlier on hopes that the Federal Reserve will rethink its monetary tightening plan in the wake of Hurricane Katrina.
While the economic damage from the hurricane remains a mystery, analysts believe it was sufficiently large to keep the central bank from raising rates beyond this month.
A sharp drop in oil prices and gains in the equity markets also pushed Treasuries downward, on the belief that energy costs may not dent economic growth as much as expected.
Bond traders are looking ahead to weekly chain store sales data due out Wednesday morning for a sense of Katrina's impact on consumer spending.
With, energy so big a question mark in this disaster, pessimists fear it is only a matter of time before consumers cut back on spending.
The euro bought $1.2464, down from $1.2538 late Friday, while the dollar bought ¥109.61, up from ¥109.15.
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For all today's latest on Bonds & Rates, click here.
-- from staff and wire reports
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