Treasury prices drop after growth in US manufacturing alleviates recession concerns

Traders exit bond market on manufacturing report

NEW YORK — Investors dropped out of the bond market Wednesday after two upbeat manufacturing reports quelled fears about a weakening economy.

Rates started with a sharp climb and stayed there for the rest of the day. The yield on the 10-year Treasury note jumped to 2.58 percent in afternoon trading, up from 2.47 percent late Tuesday.

That yield helps set interest rates on mortgages and other kinds of loans.

The Institute for Supply Management said Wednesday that U.S. manufacturing activity rose in August, even though earlier regional reports showed a slowdown in growth. Economists had expected a decline. The report broke a series of dismal economic news that sent investors flocking to the safety of Treasurys.

A second report Wednesday showed that China’s manufacturing sector picked up in August. Economists expected a pullback.

“All you need is a bit of good economic news and everybody runs to stocks and away from bonds,” said Howard Simons, strategist with Bianco Research in Chicago.

The Dow Jones industrial average jumped 255 points on the first day of September. Broader indexes also rose by 2.5 percent or more. That follows a dismal August when investors were convinced of an impending double-dip recession.

It was the second significant bond sell-off in recent days. Last week, bond prices dove after the government said that U.S. economic growth slowed less than expected in the second quarter. Experts, however, said Wednesday’s manufacturing data trumped that report.

“GDP is an old number,” said Jim Vogel, debt analyst at FTN Financial. “But today’s number is a current reading of the manufacturing sector, which means that overall GDP for the third quarter may not be quite as bad as expected.”

Investors also are looking toward Friday’s August’s employment data for a current read on the economy’s health.

“It is the freshest data we get,” Vogel said, “and it goes right to the heart of fiscal and monetary policy.”

The price of the 10-year note fell 90.625 cents to $100.406. Bond yields fall when their prices rise.

In other trading, the yield on the two-year note rose to 0.51 percent from 0.48 percent. Its price slipped 6.25 cents to $99.719.

The yield on the 30-year bond rose to 3.65 percent from 3.52 percent. Its price fell $2.405 to $104.063.

The yield on the 3-month T-bill fell to 0.12 percent from 0.13 percent. Its discount was 0.13 percent.