Treasuries Close Notably Higher On Disappointing Manufacturing Data

(RTTNews) - Treasuries moved notably higher during trading on Tuesday on the heels of the release of disappointing manufacturing data.

Bond prices showed a strong move to the upside in morning trading before moving roughly sideways in the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 6.3 basis points to 2.155 percent.

With the decrease on the day, the ten-year yield extended a recent downward trend, ending the session at its lowest closing level in a month.

The strength among treasuries came following the release of a report from the Institute for Supply Management showing an unexpected contraction in U.S. manufacturing activity.

The ISM said its purchasing managers index dropped to 48.6 in November from 50.1 in October, with a reading below 50 indicating a contraction in manufacturing activity.

The pullback into contraction territory came as a surprise to economists, who had expected the index to inch up to a reading of 50.5.

The reading below 50 points to the first contraction in manufacturing activity since November of 2012, when the index registered 48.9 percent.

James Knightley, an economist at ING Bank, said, "Overall, the report is likely to make some Fed voters wary about hiking rates later this month, but on balance we still think that is what the outcome will be."

"The services sector dwarfs manufacturing and is performing well while the economy is creating jobs, wages are starting to rise and core inflation pressures are building," he added.

Meanwhile, the Commerce Department released a separate report showing that construction spending rose more than expected in October, reaching its highest level in nearly eight years.

The report said construction spending climbed 1.0 percent to an annual rate of $1.107 trillion in October. Economists had expected spending to rise by 0.6 percent.

Economic data may remain in focus on Wednesday, with traders likely to keep a close eye on a report on private sector employment as well as the Federal Reserve's Beige Book.

Trading could also be impacted by reaction to remarks by Fed Chair Janet Yellen, who is due to deliver a speech to the Economic Club of Washington tomorrow afternoon.