Treasury yields slip as U.S. manufacturing sector shows signs of contraction

U.S. Treasury yields fell on Monday as investors assessed weak U.S. manufacturing data and looked toward a key jobs report slated for the end of the week.

The yield on the 10-year Treasury was down nearly 12 basis points to 4.394%. The 2-year Treasury yield pulled back almost 8 basis points to 4.814%.

Yields and prices move in opposite directions and one basis point equals 0.01%.

Signs of contraction in the U.S. manufacturing sector weighed on yields. The ISM manufacturing index measured 48.7 in May, below an estimate that called for 49.6. A reading below 50 is an indication of a contraction.

Investors are awaiting further economic data this week that could provide fresh hints about the state of the economy and the path of monetary policy. This includes job openings figures for April, as well as the May jobs report, which includes nonfarm payrolls and the unemployment rate for the month.

Elsewhere, the European Central Bank is set to meet Thursday and is widely expected to announce its first interest rate cut since 2019.

That comes ahead of the next Federal Reserve meeting on June 11-12. Traders are not pricing in a rate cut from the Fed until September, according to CME Group’s FedWatch Tool, but they will be watching the meeting closely for hints about the monetary policy outlook.

Investors on Monday also continued to digest Friday’s release of the personal consumption expenditures price index for April. The core PCE, which strips out food and energy costs, rose 0.2% on a monthly basis and 2.8% from a year earlier. The monthly figure was in line with expectations, while the annual reading came in 0.1 percentage points above the forecast.

Including food and energy costs, the PCE increased 0.3% from the previous month and 2.7% on an annual basis, as expected.