U.S. Government bonds slump on stronger than expected ISM manufacturing data

The U.S. Treasuries were sold off following the release of stronger than expected ISM manufacturing data for September (51.5, up from 49.4 in August). This overshadowed the weaker than expected construction spending result for August (-0.7 percent m/m, versus -0.3 percent m/m in July), reflecting continued struggles in the industry.

The yield on the benchmark 10-year Treasury note rose 3 basis points to 1.624 percent, the yield on 5-year bond jumped 4 basis points to 1.185 percent and the yield on short-term 2-year note climbed 3 basis point to 0.798 percent.

The September Institute for Supply Management estimate of US national manufacturing conditions pushed higher on the month to 51.5, above market expectations for a 50.2 result as compared to the unrevised 49.4 reading received in August.

Meanwhile, prices paid held unchanged around 53.0. Alongside the stronger headline measure, more support for future prospects was seen via weaker readings from new orders to 55.1 (up from 49.1), production to 52.8 (up from 49.6) and employment to 49.7 (up from 48.3). Alongside the slightly improved reading seen in the employment component we anticipate only modest improvement will be seen in the manufacturing component of the September employment report on Friday.

Markets now look ahead to a lighter flow of data on Tuesday, ahead of a greater run of release on Wednesday, highlighted by the ADP employment estimate, trade balance, Markit US services PMI, ISM non-manufacturing and factory orders releases.

Meanwhile, the S&P 500 Futures traded 0.50 points higher at 2,154 by 12:10 GMT.