(Updates prices, adds quote, details)
* U.S. ISM manufacturing rises but offset by construction
* Traders cite selling of T-bond puts
* Focus on Friday's U.S. nonfarm payrolls report
By Gertrude Chavez-Dreyfuss
NEW YORK, May 1 U.S. Treasury debt prices
rallied on Thursday, pushing yields on long-dated bonds to
multi-month lows, in a market that continued to cover short
positions ahead of Friday's all-important U.S. nonfarm payrolls
Yields on 30-year bonds plunged to near 11-month lows, while
those on 10-year notes slid to two-month troughs.
Thursday's U.S. economic reports were in general positive,
which should suggest that Treasuries should sell off, not rally.
On Thursday, the Institute for Supply Management said its
index of national factory activity rose to 54.9 in April from
53.7 in March. It was the strongest reading since December.
However, that was offset by a lower-than-expected rise in U.S.
construction spending of 0.2 percent, compared with expectations
for a 0.5 percent increase.
"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.
Some analysts were perplexed as to why the bond market
reacted more to the construction number, which was
backward-looking, instead of the ISM report, viewed as
Lyngen surmised the tepid rebound in U.S. construction
spending could further revise lower the already dismal U.S.
gross domestic product growth figures for the first quarter.
Ahead of the Labor Department's nonfarm payrolls report on
Friday, the market's positioning remained on the short side,
analysts said, with volumes light due to the May Day holiday in
Europe and much of Asia.
A Reuters poll showed economists expect the U.S. economy to
have created 210,000 jobs in April.
In afternoon trading, the benchmark 10-year U.S. Treasury
note rose 11/32 in price to yield 2.60 percent,
compared to 2.65 percent late on Wednesday. Yields fell as low
as 2.59 percent, the lowest since March 3.
Prices of 30-year Treasury bonds were up 28/32
to yield 3.40 percent, from 3.46 percent the previous session.
Yields dropped to 3.39 percent, the lowest since mid-June 2013.
Traders also cited selling in U.S. Treasury options on
Thursday, as some market participants further reduced their bets
of a solid April payrolls figure given Wednesday's poor 0.1
percent reading for first-quarter U.S. GDP growth.
On the Chicago Board of Trade, there was active selling in
June T-bond puts at strike prices of 132 and 134
. June T-bond futures rose to 135-15/32 after
touching their highest levels in two months earlier.
"There's a bit of a short squeeze here," said John Brady,
managing director of interest rate futures sales at R.J. O'Brien
and Associates in Chicago. "The economy is not that strong after
the GDP, housing and construction numbers we've seen."
Earlier in the session, Treasury prices trimmed losses after
data showed U.S. consumer spending in March recorded its largest
increase in more than four and a half years, rising 0.9 percent.
A separate report showed initial jobless claims increased
14,000 to a seasonally adjusted 344,000, higher than expected.
Still, the overall trend in initial claims continued to point to
an improving labor market.
(Additional reporting by Richard Leong; Editing by James