US Treasury yields rise with higher manufacturing numbers

By Tatiana Bautzer

NEW YORK, Dec 2 (Reuters) - U.S. Treasury yields rose on Monday as data showed manufacturing activity improved in November, with orders growing for the first time in eight months and factories facing significantly lower prices for inputs.

The yield on the benchmark U.S. 10-year Treasury note rose 2.7 basis points to 4.221%, paring back an earlier sharper rise.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 0.4 basis point.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, rose 4.1 basis points to 4.215%.

The Institute for Supply Management said on Monday its manufacturing PMI increased to 48.4 last month from 46.5 in October, which was the lowest level since July 2023. Economists polled by Reuters had forecast the PMI rising to 47.5. A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.3% of the economy.

Analysts looking closely at the manufacturing data saw some signs of weakness not evident in headline numbers. Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin, said the headline improved, but details were disappointing.

"New orders rose, but it could be a flash in the pan with 66% of manufacturing GDP contracting in November. Excess capacity with deficient demand means the great awakening of manufacturing isn't happening yet. Manufacturing may be hibernating for the winter," Jacobsen said.

"The most important thing was the unexpected drop at the prices paid by manufacturers; that's an interesting anecdote that could influence inflation indexes ahead," said Vail Hartman, analyst on the U.S. Rates Strategy team at BMO Capital Markets. But markets' initial reaction was to the survey readings beating estimates.

Market see a 62% chance of a 25 basis points interest cut at the next FOMC meeting on Dec. 17-18, according to CME's FedWatch Tool.

Comments from Fed Governor Christopher Waller and New York Fed President John Williams will be closely watched later in the day.

(Reporting by Tatiana Bautzer; additional reporting by Chuck Mikolajczak; editing by Jonathan Oatis)