Prices for U.S. Treasurys rose on Monday, building on three straight weekly gains, after data showed U.S. manufacturing growth slowed in March, feeding worries about the strength of the recovery in the world's biggest economy.
The Institute for Supply Management said on Monday its index of national factory activity fell to 51.3 last month, from 54.2 in February. A reading above 50 indicates expansion in the manufacturing sector. New orders, a key indicator of future growth, accounted for much of the drop in the index.
"The weaker than expected ISM manufacturing report was really the big bullish trigger for today's session," said Ian Lyngen, a senior government bond strategist at CRT Capital Group in Stamford, Connecticut.
Stocks pulled back from record highs in the wake of the data, and prices for Treasurys reversed early losses to advance.
"Since manufacturing has been a bright spot in the economy lately, the weaker-than-expected reading had an outsized effect on the market," said Thomas Simons, vice president and money market economist at Jefferies & Co in New York.
Trading resumed on Monday after an early close on Thursday and a closure on Friday for the Good Friday holiday in the United States. Trading on Monday was subdued, with markets in most of Europe shut for Easter Monday.
Ten-year Treasurys, falling in price before the data, advanced to trade up 4/32, yielding 1.840 percent, down slightly from 1.85 percent late on Thursday.
The market has a full plate of economic data to absorb this week: The last three days of the trading week each feature a report on the labor market, starting with the ADP employment report on Wednesday, the latest weekly jobless claims figures on Thursday, and the highly influential non-farm payrolls report from the U.S. Labor Department on Friday.
The latter will be closely scrutinized for signs of further improvement in hiring. The report is expected to show that 200,000 jobs were added in March, according to the median estimate of economists polled by Reuters.
Treasurys End Q1 Slightly Weaker
Treasurys ended the first quarter only slightly weaker after bailout squabbles for euro zone member Cyprus saw investors scoop up safe havens, erasing most of the losses of January and February, when investors bet on a strengthening U.S. economy.
Benchmark 10-year Treasurys yields reached near three-week lows by the end of last week on fear that the Cypriot bailout deal, inflicting losses on bondholders and bank depositors, could be replicated elsewhere in the monetary union.
Barclays' total return index on U.S. Treasurys fell 0.13 percent in the first three months of 2013, after a 0.09 percent decline in the fourth quarter of last year.
Market participants still expect yields to gradually edge higher as the U.S. economy continues to strengthen.
Near-term, however, yields could slip, said William O'Donnell, head of U.S. Treasury strategy at RBS Securities in Stamford, Connecticut.
"We continue to see a 1.72 percent to 2.15 percent range for 10-year yields, perhaps persisting through the second quarter," he said. "Key support remains 2.15 percent while near term resistance is around 1.83 percent.
"Our bias remains toward modestly lower yields near-term because positioning is favorable and medium-term charts are turning bullish for the first time since early December," O'Donnell said.