Investors were not ready to make a 180-degree turn

Treasury prices fell Tuesday when news that the U.S. manufacturing sector unexpectedly grew at its strongest pace in 10 months cast doubt on views the U.S. economy was faltering and would need more stimulus from the Federal Reserve.
The Institute for Supply Management said its index on nationwide factory activity rose to 54.8 in April, up from 53.4 in March.
"The ISM index was a notable contrast to the mostly weaker data we have seen over the past month or so, so stocks rallied and you saw a mild sell-off in U.S. Treasuries following this number," said Eric Stein, vice president and portfolio manager at Eaton Vance Investment Managers in Boston.
"The market was taken offside by the strong ISM number," said Jeffrey Given, managing director and portfolio manager at John Hancock Asset Management. "Most of the early manufacturing indicators pointed to a weaker number, not a stronger one, so the stronger-than-expected ISM index diminished some of the concerns about the growth outlook.

"That was negative for Treasuries because if other data start to look more like this number, it potentially takes QE3 off the table or at least pushes out the timing for QE3," Given said, referring to the possibility that the Fed would undertake more large-scale asset purchases to try to stimulate economic growth and employment.
Treasuries also took a breather after a bit of month-end buying, said Wilmer Stith, portfolio manager at Wilmington Trust Broad Market Fund.
"We just got finished with month-end, so people who might have had to buy Treasuries yesterday did that and now you have a little lull," he said.
Benchmark Treasury yields have been moving in a range between 1.9% and 2.15%. With yields near the low end of that range, "it's no surprise that we're off here," Stith said.
With the April jobs report due Friday, however, investors were not ready to make a 180-degree turn.
Treasury yields rose, but recession in much of Europe and high U.S. unemployment argued against a big exit from Treasuries.
The Labor Department will release its April jobs report at 8:30 a.m. Friday. Economists estimate employers added 170,000 jobs last month, a subdued view after a disappointing 120,000 gain in March.
The lackluster March employment report helped fuel a rally in Treasuries during April and contributed to "a little bit of an overbought condition" in the bond market, said Brian Levitt, economist at Oppenheimer Funds in New York. "Ten-year rates have rallied from 2.3% to almost 1.9% as the market priced in a pretty weak economic outcome in the United States."