Treasury Rise Slightly on Subprime Woes

NEW YORK - U.S. Treasury bond prices rose modestly Monday as subprime worries and technical factors attracted investors into the market.

At 5 p.m. EDT, the 10-year Treasury note was up $3.13 per $1,000 in face value, or 10/32 point, from its level at 5 p.m. Friday. Its yield, which moves in the opposite direction, fell to 4.99 percent from 5.03 percent.

The 30-year bond rose 17/32 point. Its yield fell to 5.09 percent from 5.13 percent.

The 2-year note rose 1/32 point. Its yield fell to 4.85 percent from 4.88 percent.

Yields on 3-month Treasury bills were 4.87 percent as the discount rate rose 0.05 percentage point to 4.74 percent.

Most of the market's price gains came early in the session and was rooted in the ongoing worries surrounding the state of subprime mortgage lending. That section of the market has undergone significant turmoil lately, and while its effect on the broader economy thus far has been less profound then its effect on some corners of the financial sector, it has kept many investors worried.

Another fear-based factor bolstering Treasury yields is the recent terrorism-related events in London. Also, trading desks were lightly staffed Monday ahead of Tuesday's shortened session and the Wednesday market closure in observance of the U.S. Independence Day holiday. The possibility of unexpected events have pushed many investors to load up on safe harbor securities such as risk-free U.S. Treasurys.

In theory, bonds should have been under pressure Monday. A key manufacturing report, the Institute for Supply Management's June index, turned in a better-than-expected performance, with the overall index coming in at 56.0, from May's 55.0. That was the best reading since April 2006. Inflationary pressures remained on the march in the manufacturing sector, albeit at a reduced pace, with the prices index hitting 68.0, from the prior month's 71.0.

The report appeared to confirm economists' expectation that after a tough start to the year, the economy is poised to see better growth as the year progresses. "Following a weak first quarter, the manufacturing sector rebounded in a strong fashion during the second quarter," said Norbert Ore, who directs the survey.

Economists at Barclays Capital said "the report indicates that activity in the manufacturing sector continued to ramp up at the end of second quarter, and this sector is contributing importantly to the move up in overall (gross domestic product) growth."

(This version CORRECTS previous yields.)