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NEW YORK (CNN/Money) -
Bonds moved higher Wednesday as a fresh spike in crude renewed fears that high energy prices could weigh on economic growth and the market shrugged off a report that showed stronger-than-expected growth in the services sector.
The dollar was little changed against the euro, but gained on the yen.
The benchmark 10-year note rose 9/32 of a point to 100-12/32, to yield 4.07 percent, down from 4.11 late Tuesday, while the 30-year bond added 21/32 of a point to 116-3/32 to yield 4.33 percent, down from 4.37 in the previous session. Treasury prices and yields move in opposite directions.
The five-year note gained 4/32 to yield 3.87 percent, and the two-year note edged up one tick to yield 3.77.
The Institute of Supply Management's non-manufacturing index for June showed strong-than-expected growth, bolstered in part by an uptick in hiring.
The index rose to 62.2 in June, well above Wall Street forecasts of 58.0 and stronger than May's reading of 58.5. A number above 50 indicates growth in the sector, which accounts for about 80 percent of the U.S. economy.
But traders shrugged off the report, choosing to look ahead to the June non-farm payrolls report.
"Things that would ordinarily move the market are having only minimal impact," Mary Ann Hurley, senior Treasuries trader in Seattle, Wash. for brokerage D.A. Davidson & Co., told Reuters. "People are really just looking ahead to Friday's employment report."
Traders also bought bonds after oil prices surged to a record trading high above $61 a barrel on the perception that rising energy costs could hurt corporate profits and slow economic growth.
"The higher oil prices are being viewed as a governor on growth rather than an inflationary risk," said CIBC's De Rose.
Bond traders fear inflation because it erodes the value of their fixed asset investment.
But long-term yields have remained low despite a year of fed fund rate hikes and signals that the economy is solid and inflation is well in hand -- indicators that often cause bonds to sell-off and push yields higher.
When short-term yields become higher than long-term yields, it is called an inverted yield curve. An inverted yield curve has preceded the nation's last two economic recessions, and in a recent report top Treasury broker Cantor Fitzgerald predicted that curve would invert as early as next quarter. (Click here for more on that story.)
In currency trading, the dollar drifted against the euro and extended its rally against the yen.
The euro bought $1.1926, up from $1.1917 in the previous session, while the dollar bought ¥112.20, up from ¥111.59.
Will the yield curve invert? Click here for more.
Click here for bond charts.
-- from staff and wire reports
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