(Updates prices, adds ETF action)
* 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
advanced 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 late afternoon trading, the benchmark 10-year U.S.
Treasury note rose 9/32 in price to yield 2.61
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 30/32
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."
Short-covering of Treasuries were also evident in the
exchange traded fund world. Investors bought heavily the iShares
Barclays 7-10 year Treasury Bond ETF on Thursday, which
ended the trading day at $102.41, the highest in two weeks.
Volume shot up to a record 21.8 million shares.
Heavy buying was also seen in the ProShares Ultra 7-10 year
Treasury ETF, closing at $52.67, the highest in 1-1/2
months. Volume rose to 12.38 million shares, the most in two
(Additional reporting by Richard Leong; editing by Andrew Hay)