Bonds gain on weak economic data

NEW YORK (CNNMoney.com) -- Bond made solid gains Tuesday as a surprise drop in consumer confidence and a decline in manufacturing offset a report showing higher labor costs.

The dollar fell against the euro and yen

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The benchmark 10-year note added 16/32, or $5 on a $1,000 note, to yield 4.60 percent, down from 4.67 late Monday.

The 30-year bond jumped 31/32, or $9.69 on a $1,000 note, to yield 4.72 percent, down from 4.78 the previous session.

The five-year note rose 9/32 to yield 4.57 percent, while two-year note gained 3/32 to yield 4.70.

The Conference Board said its index of consumer confidence index fell to 105.4 from a revised 105.9 in September. Confidence is closely watched since it tends to influence consumer spending, which in turn fuels about 70 percent of the nation's economy.

The research group said its survey found that consumers were mixed on current business conditions and had a less favorable view of the job market. Economists surveyed by Briefing.com had forecast the index would rise to 107.8.

In addition, the Chicago purchasing management index, a measure of manufacturing activity, fell to 53.5 from 62.1 in September and was below economists' forecast for 58.0.

Bonds had stalled earlier after the Labor Department reported that employment costs rose a larger-than-expected 1 percent during the third quarter, beating estimates for a 0.9 percent gain.

Bond traders bet the decline in consumer confidence could indicate that spending and inflation are on the wane.

Inflation hurts bonds as it erodes the value of the fixed-interest paying investment.

In currency trading, the euro bought $1.2763, up from $1.2730 late Monday. The dollar bought ¥116.95, down from ¥117.40 the previous session.

--from staff and wire reports

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