Treasuries Close Modestly Lower After Seeing Early Strength

(RTTNews) - After moving to the upside early in the session, treasuries turned lower over the course of the trading day on Wednesday.

Bond prices pulled back off their early highs and ended the day modestly lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.2 basis points to 1.846 percent.

The pullback by treasuries came following the release of an Institute for Supply Management report that unexpectedly showed an uptick in the pace of growth in manufacturing activity in May.

The Institute for Supply Management said its purchasing managers index rose to 51.3 in May from 50.8 in April, with a reading above 50 indicating growth in the manufacturing sector.

The modest increase came as a surprise to economists, who had expected the index to edge down to a reading of 50.6.

"Based on the weakness in the early regional surveys, we had feared the ISM would drop back below the 50 mark," said Steve Murphy, U.S. economist at Capital Economics.

He added, "It's possible that the headwinds facing export-orientated manufacturers from the dollar's massive appreciation in late 2014 and early 2015 are slowly beginning to fade."

The better than expected U.S. manufacturing data offset concerns raised by the release of disappointing Chinese manufacturing data overnight.

Treasuries remained in the red following the release of the Federal Reserve's Beige Book, a compilation of anecdotal evidence on economic conditions from the twelve Fed districts.

The Fed said information received from the twelve districts mostly described modest economic growth since the last Beige Book report in April.

Several districts noted that contacts had generally optimistic outlooks, the Fed said, with firms expecting growth either to continue at its current pace or to increase.

With regard to inflation, the central bank said wages grew modestly and price pressure grew slightly in most districts.

Reports on private sector employment and weekly jobless claims may attract attention on Thursday, although trading activity may be somewhat subdued ahead of the more closely watched jobs report due on Friday.