treasuries stumble as empire strikes back

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    Treasuries Stumble as Empire Strikes Back
    Monday June 16, 8:37 am ET

    NEW YORK (Reuters) - Treasury yields turned mixed on Monday as early gains were eroded by a surprisingly upbeat survey of manufacturing in the New York area.
    The Empire State survey far exceeded expectations by jumping to 26.8 in June, a record high, from 10.6 in May. New orders and shipments both improved and some 65 percent of respondents were optimistic on the outlook.

    Traders did note that the employment index remained depressed and the prices paid component fell below zero for the first time in a year, feed worries about deflation.

    The survey is also relatively new, having started in July 2001, and is not that influential with analysts who note that manufacturing makes up only a small part of the New York economy.

    "It raises the risk that the Philly Fed index will surprise on the upside," said a trader at a U.S. primary dealer, referring to the Philadelphia Fed survey out on Friday. "If so, then it could lessen the odds of a half point rate cut from the Fed."

    "But these are secondary-figures and the main numbers this week, like CPI and production, should support calls for at least 25 basis points," he added. Consumer prices and industrial production figures are both out on Tuesday.

    The Federal Reserve's policy board meets next week and hopes are riding high it will ease policy for the first time in eight months.

    Indeed, since the Federal Reserve first warned of the dangers of falling inflation back in early May, benchmark 10-year yields have plunged from 3.92 percent to 3.10 percent and analysts fully expect a break under 3.00 before long.

    Still in the very short term Treasuries were looking overbought having rallied five of the last six sessions and traders would not be surprised to see a bout of profit-taking.

    The 10-year note (US10YT=RR) was flat in price giving a steady yield of 3.12 percent. Earlier, yields sank to a fresh 45-year low of 3.07 percent.

    The 30-year bond (US30YT=RR) firmed 4/32, taking its yield to 4.17 percent from 4.18 percent. At the short-end, the two-year note (US2YT=RR) eased 1/32 for a yield of 1.10 percent from 1.08 percent, while the five-year (US5YT=RR) dipped 2/32 giving a yield of 2.05 percent from 2.03 percent.

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