January 2, 2015 / 3:40 PM / 5 years ago

TREASURIES-Bond yields fall as manufacturing data disappoints

* Prices gain after weakening U.S. manufacturing data
    * Bonds reverse earlier weakness from Draghi
    * Fed minutes, employment data in focus next week

    By Karen Brettell
    NEW YORK, Jan 2 (Reuters) - U.S. Treasury prices gained on
Friday after data showed that growth in the American
manufacturing sector slowed more than expected in December,
overturning earlier bond weakness on signs the European Central
Bank is closer to launching new stimulus.
    The Institute for Supply Management (ISM) said its index of
national factory activity fell to 55.5 from 58.7 the month
before. The reading was shy of expectations for 57.6, according
to a Reuters poll of economists. 
    Thin trading volumes on the day after the New Year's holiday
was seen as exacerbating price moves.
    "On a day where there are probably not many people around,
even a small decline is noteworthy," said Jim Kochan, chief
fixed income strategist at Wells Fargo Funds Management in
Menomonee Falls, Wisconsin.
    Kochan added that growth remained strong despite the
decline. "It's still a very, very good reading."
    Benchmark 10-year notes were last up 17/32 in
price to yield 2.11 percent, the lowest since Dec. 17.
Thirty-year bonds gained 1-13/32 in price to yield
2.69 percent, also the lowest since Dec. 17.
    In another report, financial data firm Markit said its final
U.S. Manufacturing Purchasing Managers Index fell to 53.9 in
December from November's final reading of 54.8. The preliminary
December read for the index was 53.7. 
    The U.S. data came after earlier reports showed that the
global economy ended 2014 in a fragile state as factories
struggled to maintain growth across Europe and Asia.
    In Frankfurt, European Central Bank President Mario Draghi
indicated in an interview that the ECB would take bolder steps
on monetary stimulus. That boosted the dollar and hurt the euro.
    Investors are next focused on the Jan. 7 release of minutes
from the Federal Reserve's December meeting, when the central
bank changed its vow to keep interest rates near zero for a
"considerable time" to say that it would remain "patient."
    Traders will be watching for further clues to when the Fed
is likely to begin raising rates, as well as indications over
how fast and spread out rate hikes may be once the tightening
    The U.S. employment report for December is also due on Jan.
    Corporate supply is likely to increase next week as
companies rush to sell debt before the Fed raises rates, which
may pressure yields. 
    "People are preparing for the barrage of new issuance that
will come out next week," said Gennadiy Goldberg, an interest
rate strategist at TD Securities in New York.

 (Editing by Jonathan Oatis)
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