Treasuries drop as rise in Factory Orders decreases haven bets

Factory orders counterweight yesterday's bad ISM number

Treasuries declined as a government report showed orders placed with U.S. factories rose in May for the first time in three months, reducing concern the economic recovery is faltering.

Benchmark 10-year notes erased gains posted yesterday after another report showed manufacturing expectedly contracted. The securities have traded in a yield range of 1.57 percent to 1.67 percent for the 19th time in the past 20 trading sessions, according to Royal Bank of Scotland Group Plc. A U.S. government report this week is forecast to show employers added fewer than 100,000 workers for a third month in June.

“With the risk-on trade, we could see some pressure,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of 21 primary dealers that trade with the Federal Reserve. “It’s a range-bound session ahead of tomorrow’s holiday and with the European Central Bank and payrolls later in the week.”

The 10-year yield rose two basis points, or 0.02 percentage point, to 1.60 percent at 10:55 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.75 percent note due in May 2022 declined 3/32, or 94 cents per $1,000 face amount, to 101 3/8. The yield fell six basis points yesterday. It dropped to a record 1.4387 percent on June 1.

Trading of Treasuries is scheduled to close at 2 p.m. New York time and stay shut worldwide tomorrow in observance of the Fourth of July holiday in the U.S., according to the Securities Industry and Financial Markets Association.

Term Premium

Treasuries yields are at levels making them near the most overpriced ever, according to a model created by Federal Reserve economists know as the term premium. The gauge was negative 0.91 today, the lowest since falling to a record negative 0.94 on June 1. A negative reading indicates investors are willing to accept yields below what is considered fair value.

Orders placed with U.S. factories rose in May for the first time in three months, easing concern that manufacturing is faltering.

The 0.7 percent increase in factory orders followed a revised 0.7 percent drop in the prior month, the Commerce Department said today in Washington. The median forecast of economists in a Bloomberg News survey called for a rise to 0.1 percent.

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