NEW YORK: US Treasury prices gained on Friday after data showed that growth in the American manufacturing sector slowed more than expected in December, overturning earlier bond weakness on signs the European Central Bank is closer to launching new stimulus.
The Institute for Supply Management (ISM) said its index of national factory activity fell to 55.5 from 58.7 the month before. The reading was shy of expectations for 57.6, according to a Reuters poll of economists.
Thin trading volumes on the day after the New Year's holiday was seen as exacerbating price moves.
"On a day where there are probably not many people around, even a small decline is noteworthy," said Jim Kochan, chief fixed income strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
Kochan added that growth remained strong despite the decline. "It's still a very, very good reading."
Benchmark 10-year notes were last up 17/32 in price to yield 2.11 percent, the lowest since Dec. 17. Thirty-year bonds gained 1-13/32 in price to yield 2.69 percent, also the lowest since Dec. 17.
In another report, financial data firm Markit said its final US Manufacturing Purchasing Managers Index fell to 53.9 in December from November's final reading of 54.8. The preliminary December read for the index was 53.7.
The US data came after earlier reports showed that the global economy ended 2014 in a fragile state as factories struggled to maintain growth across Europe and Asia.
In Frankfurt, European Central Bank President Mario Draghi indicated in an interview that the ECB would take bolder steps on monetary stimulus. That boosted the dollar and hurt the euro.
Investors are next focused on the Jan. 7 release of minutes from the Federal Reserve's December meeting, when the central bank changed its vow to keep interest rates near zero for a "considerable time" to say that it would remain "patient."
Traders will be watching for further clues to when the Fed is likely to begin raising rates, as well as indications over how fast and spread out rate hikes may be once the tightening begins.
The US employment report for December is also due on Jan. 9.
Corporate supply is likely to increase next week as companies rush to sell debt before the Fed raises rates, which may pressure yields.
"People are preparing for the barrage of new issuance that will come out next week," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.
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