Treasurys fall on market rally
Investors seek higher returns in more risky assets as the ISM manufacturing index came in better-than-expected, sentiment improves.
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| Click the chart for current bond prices and yields. |
NEW YORK (Reuters) -- Treasury bond prices tumbled Monday as a global stock market rally undermined the safe-haven bid for government debt and optimistic reports on manufacturing and construction reinforced U.S. economic recovery hopes.
As the global financial crisis neared its second anniversary, signs of an incipient rebound now consistently appear in economic data reports.
Those economic harbingers pushed stocks higher and Treasurys prices down.
"Investors are buying more risk assets like equities, and Treasurys are suffering," said John Spinello, senior vice president and chief fixed-income technical analyst at Jefferies & Co. in New York. "All these positives about the economy and the stock market are coming at the expense of Treasurys."
The benchmark 10-year Treasury note's price, which moves inversely to its yield, fell 1-8/32, its yield rising to 3.65% from 3.48% late Friday.
The Institute for Supply Management said its U.S. manufacturing index for July rose to 48.9, near the critical 50 mark which divides expansion from contraction.
"ISM reported significant improvement in manufacturing conditions, with composition (of the index) suggesting more to come in the near future," said economists at Goldman Sachs.
A rise in U.S. June construction spending, including a 0.5% rise in private residential construction, was another piece of good economic news.
"The economy is at least stabilizing, if not improving slightly," said William O'Donnell, head Treasury strategist at RBS Securities in Stamford, Conn. "The predictable reaction of the Treasury market is to cheapen further, with stocks rebounding further," he said.
Investors' belief that the recession was abating pushed the S&P 500 Index above the pivotal 1,000-points mark. Even before the manufacturing report, Wall Street stocks had a strong start, aided by some reassuring European bank results.
Banks have been hefty buyers of Treasurys over the past two weeks, said Jamie Cox, managing partner at financial planning and asset management company Harris Financial Group in Colonial Heights, Va. But should stocks go on climbing and breach key levels, that would crimp this demand and draw more flows away from the government bond market, he warned.
"At some point, all that money is going to come washing out. The real risk is a huge spike in rates; that the demand for Treasurys will wane," Cox said. "If the stock market continues to climb, it may happen quicker than we think."
The 2-year Treasury note price fell 4/32, its yield rising to 1.18% from 1.11% late Friday.
The 7-year note fell 30/32 in price, its yield rising to 3.30% from 3.15% on Friday.
The 30-year Treasury bond fell 1-30/32 in price, its yield rising to 4.42% from 4.30% Friday.
Adding to impressions manufacturing was finding a footing was Ford Motor Co (F, Fortune 500).'s first year-over-year monthly sales increase since November 2007. 
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