NEW YORK (MarketWatch) — Treasury prices extended their pullback Tuesday, propelling the government debt market to its fourth day of losses in five sessions, after data showed service-sector companies expanded at a faster rate in October.
The Institute for Supply Management said its nonmanufacturing survey of purchasing manufacturers rose to a 55.4% reading last month from 54.4% in September, beating economist expectations of a 54% reading. A result over 50% indicates expansion.
The 10-year note US:10_YEAR yield rose 5.5 basis points on the day to 2.660%, up roughly 15 basis points from last week to its highest level since mid-October. The 30-year bond US:30_YEAR yield rose 5.5 basis points to 3.753%, while the 5-year note US:5_YEAR yield rose 2 basis points to 1.380%.
“When we saw the ISM manufacturing [on Friday] and nonmanufacturing both being stronger than expectations and better than the previous, it really called into question the thesis that the government shutdown shook confidence,” said Tom Graff, fixed-income portfolio manager at Brown Advisory.
Treasurys have given up some gains that followed a Federal Reserve decision not to scale back its bond-buying program in September as the market continues to seek clarity on a time frame for when the central bank will begin to edge out of its $85 billion in monthly purchases. Though many had homed in on expectations of a pullback in the spring of 2014, some market participants have moved forward their expectations for timing and speed after the Federal Reserve’s policy statement last week sounded a less dovish tone than expected.
“I think the expectation was for something overly dovish, and I think it came out in the middle-of-the-road,” said Boris Rjavinski, rates and rate derivatives strategist at UBS.
As investors look for clarity about how the Fed may edge out of its monthly bond buys, it will look to an October nonfarm payrolls report on Friday, which the central bank uses as an assessment of the labor market. The data, however, may be skewed by the federal government shutdown last month.
Home prices rose in September rose at the fastest annual pace since early 2006. According to data released by CoreLogic Tuesday, home prices rose 0.2% in September as the annual pace hit 12%.
Fed speakers in recent days have taken to the podium to give their outlooks on monetary policy. Despite a range of opinions, some central bankers seem to have become less dovish in their appearances, perhaps in an attempt to help guide the markets, according to Rjavinski.
“I think if you try to parse the Fed-speak lately, what you may seen is that they’ve gotten more careful about how they communicate their intentions to the market,” he said.
Eric Rosengren, the president of the Boston Fed Bank, said Tuesday that economic growth in the second half of the year is shaping up to be “substantially slower than I want to see.” Rosengren, who is a voting member of the policy committee this year, said late Monday that delaying the so-called taper of the Fed’s bond-purchase program would not substantially alter the Fed’s balance sheet.
Richmond Fed President Jeffrey Lacker spoke in the afternoon but didn’t touch on monetary policy. Eastern and San Francisco Fed President John Williams speaks at 5 p.m. Eastern time. Neither are voting members.