The Bond Market Is Breaking Down

Today is turning into a repeat of yesterday in the bond market.

We had a few better-than-expected economic data releases this morning, and Treasuries are taking a hit.

Initial jobless claims fell to their lowest level January 2008, with only 326,000 filed this week. Economists expected initial claims to rise to 345,000. The release at 8:30 sent bonds lower, but analysts caution that the numbers look better due to irregular summer schedules at auto plants.

Markit’s U.S. manufacturing PMI index advanced to 53.7 from 51.9 in July, beating expectations for a rise to 53.2. Meanwhile,┬áISM’s monthly manufacturing index surged to 55.4 in July from 50.9, also beating expectations for a smaller rise to 52.0.

The two reports suggest that the pace of expansion in American manufacturing ramped up significantly last month, and gets the second half of the year off to a good start in terms of economic data.

The yield on the 10-year U.S. Treasury note is up 10 basis points from yesterday’s close to 2.67%.

The chart below shows the big drop in 5-year U.S. Treasury futures this morning.


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