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Prices edge up before US factory data

NEW YORK - U.S. government debt prices edged higher on Tuesday, as traders anticipated data on domestic manufacturing that would support the notion of U.S. economic growth slowing and the need for more stimulus from the Federal Reserve.

Benchmark yields are hovering at their lowest levels in nearly three months, fueled by bets that a recession is spreading across Europe and economic growth in the United States losing momentum.

“There are concerns that the economy will roll over again after the first quarter and that’s supportive for Treasuries,” said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.

At 10 a.m. (1400 GMT), the Institute for Supply Management will release its April reading on U.S. nationwide factory activity after regional data on Monday showed slowing in manufacturing growth after a strong first quarter. Economists predicted ISM’s factory activity index, which the Fed monitors, likely slipped to 53.0 in April from 53.4 in March.

The ISM data follow mixed overseas readings, which showed British factory output barely grew in April but Chinese manufacturing growth accelerated at its fastest pace in 13 months.

At the same time, the U.S. government will report its March figures on construction spending, which likely rose 0.5 percent compared with a 1.1 percent decline in February.

Also, vehicle producers are reporting their April sales.

Trading volume was scant as financial markets in China and many euro zone and Latin American countries were closed for May Day or Labor Day.

As of 8 a.m. (1200 GMT), Treasuries volume was about 25 percent of its 20-day average, according to bond broker ICAP.

There could be a pickup in activity later Tuesday in advance of the latest Treasuries purchase by the Fed for its “Operation Twist” program. The U.S. central bank is set to buy $4.50 billion to $5.25 billion in Treasuries due in May 2020 to Feb 2022 at 11 a.m. (1500 GMT).

The Fed’s $400 billion bond program, aimed at holding down mortgage rates and other long-term borrowing costs, is scheduled to end in June.

In the open market, benchmark 10-year notes traded up 3/32 in price to yield 1.91 percent, down 1 basis point from Monday’s close.

Thirty-year bonds climbed 8/32 in price for a 3.10 percent yield, down 1 basis point from late on Monday.

APRIL REBOUND FOR BONDS

Barclays’ total return index on Treasuries rose 1.45 percent in April according to data that became available late on Monday, lifting to the sector into positive territory for the year after logging its worst quarter since 2010 from January to March. Year-to-date, the index was up 0.14 percent.

The comeback in U.S. government debt was led by long-dated issues which regained their appeal due to anxiety about Europe’s fiscal problems and slowing growth in the United States. Treasuries maturing in 20 years or later earned a total of 4.66 percent last month, reducing their year-to-date decline to 2.38 percent, according to Barclays.

Barclays’ Aggregate index, which gauges the performance of all U.S. investment-grade bonds, rose 1.09 percent in April, bringing its year-to-date rise to 1.95 percent.

Returns on investment-grade corporate bonds were not far behind Treasuries. Barclays’ U.S. credit index was 1.34 percent in April, adding its year-to-date gain to 3.40 percent.

U.S. junk bonds remained the best performers so far this year. Barclays’ high-yield bond index was up 6.44 percent in the first four months of the year after posting a 1.05 percent increase in April.