* U.S. ISM manufacturing rises but offset by construction
* U.S. consumer spending grows 0.9 percent
* Bias of govt debt market still on the short side
By Gertrude Chavez-Dreyfuss
NEW YORK, May 1 U.S. benchmark Treasury yields
fell to their lowest in two weeks on Thursday in a market that
continued to cover short positions ahead of Friday's
all-important U.S. nonfarm payrolls report.
Thursday's U.S. economic reports were in general positive,
which should suggest that Treasuries should continue to sell
off, not rally.
"The fact that we have seen stocks pull back and Treasuries
rally despite a strong ISM number would suggest that the market
is positioned relatively short for the payrolls number
tomorrow," said Ian Lyngen, senior government bond strategist,
at CRT Capital in Stamford, Connecticut.
The Institute for Supply Management (ISM), for instance,
said its index of national factory activity rose to 54.9 in
April, up from 53.7 in March. It was the best reading since
December. However, that was offset by a weaker-than-expected
rise in U.S. construction spending, which grew a marginal 0.2
percent, compared with expectations for a 0.5 percent increase.
Some analysts were perplexed as to why the bond market
seemed to have reacted more to construction spending, which was
backward-looking, instead of the ISM report, viewed as
CRT's Lyngen surmised that the tepid rebound in U.S.
construction spending could further revise lower the already
dismal gross domestic product growth figures for the first
Ahead of the Labor Department's non-farm payrolls report on
Friday, the market remained on the short side, analysts said,
with volumes light due to the May Day holidays in Europe and
much of Asia.
A Reuters poll showed economists expect the U.S. economy to
have created 210,000 jobs in March.
In morning trading, the benchmark 10-year U.S. Treasury note
rose 7/32 in price to yield 2.62 percent, compared
to 2.65 percent late on Wednesday. Yields fell as low as 2.61
percent, the lowest since April 15.
Stanley Sun, interest rate strategist, at Nomura Securities
in New York, said the market's bias is still to sell Treasuries
into strength especially as yields are wedged at the bottom of
the range. "Most people kind of expect the range to hold. If we
go down to 2.60 pct on the 10-year, we would be selling into
Prices of 30-year Treasury bonds were up 15/32
to yield 3.43 percent, from 3.46 percent the previous session.
Treasury prices trimmed early losses after data showed U.S.
consumer spending recorded its largest increase in more than
four and a half years in March, rising 0.9 percent.
A separate report showed initial claims for staunemployment
benefits increased 14,000 to a seasonally adjusted 344,000,
higher than expected. But claims are volatile around this time
of the year as the timing of the Easter and Passover holidays
and school spring breaks makes it difficult to adjust for
(Editing by Chizu Nomiyama)