Treasuries finished with gains today in light trading as some participants sought the protection of government bonds in a holiday-disrupted week. The gains came despite a surge in the stock market. In late trading, the 10-Year Treasury Note was up by 10/32, lowering its yield to 4.99%; the Dow was up by 126.81 points to 13,535.43; and the Nasdaq was up by 29.07 points to 2,632.30.The flow into bonds came from traders putting money into the relative safety of government securities in a week in which foreign investors will be trading on Wednesday while U.S. markets will be closed. Following the events in Great Britain in the last few days, the heightened concern of possible terrorist activity during the holiday may also have been a factor in today's advance.
Trade meant to offset losses in subprime mortgage backed securities is also being cited as a positive influence on Treasuries.
The economic release of the day had conflicting market implications. The ISM Index of the nation's manufacturing sector showed better than expected growth in June. But the rate of growth for prices paid by manufacturers eased somewhat for a second month.
The manufacturing and price data constituted a double-plus for stocks and news of several M&A deals also helped fuel today's rally. An initial pull-back in oil futures lent early support, as well, but oil prices ultimately turned higher on the day. A barrel of light, sweet crude oil for August delivery rose by $0.41 on the New York Mercantile Exchange to settle at $71.09, the highest close for a front-month contract since last August. The record high close was $77.03 on July 14 of last year. Nevertheless, the Dow gained 0.95% on the day; the S&P 500,
1.07%; and the Nasdaq, 1.12%.
The only major release tomorrow is the report on factory orders for May. With last week's weak report on durable goods orders, analysts are looking for an overall manufacturing order decline of between 1.0% and 1.5%. This would be the first decline since January. Sub-categories that will be closely watched are orders excluding transportation and orders excluding the defense sector. Transportation is highly volatile due to swings in aircraft orders and the
needs of the defense sector are not governed by standard market forces. The category of ex-defense capital goods minus aircraft is also seen as a key indicator of core business demand.
The Securities Industry and Financial Markets Association has recommended that bond trading end early tomorrow (2:00 PM instead of 3:00 PM Eastern Time). Some additional safe-haven buying ahead of the Independence Day holiday may offer some support in the morning but light trading volumes may produce unpredictable price moves. All domestic markets will be closed on Wednesday. Thin, defensive trade is expected on Thursday as well since the
highly-influential employment report is due out on Friday.
