US treasury bonds approach low on poor manufacturing news

Yields on 10-year US Treasury bonds fell 8 basis points on Wednesday to yield 4.9 percent, while 30-year bond yields approached a 2-year low of 4.245 percent in very heavy trading.

The declines in government bond yields were a result of a poor report concerning US manufacturing growth and speculation that the US Federal Reserve might soon halt its regime of rising interest rates.

The ISM index of manufacturing activity for last month was 51.4, down 1.9 points from the previous report. A poor report was expected after an earlier report showing a drop in the Chicago manufacturing activity index.

Even though the ISM remained above the level of 50 that separates expansion from contraction, investors reacted strongly to the news and the lower bond yields were a result. Their reaction was only exacerbated by talk that the Fed might soon decide to step back from current interest rate hikes.

One indication that it might take this step is that concern over inflation has been fading recently. Also, one economist pointed out that since 1989 the Fed has made a practice of halting interest rate hikes when the ISM reaches a level of between 53 and 54.

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