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Treasurys fall as investors cash gains ahead of holiday weekend; economic data are mixed

By TIM PARADIS | AP Business Writer

5:36 PM EDT, August 29, 2008

NEW YORK (AP) _ Treasury prices mostly fell Friday ahead of the long holiday weekend as traders booked profits in an abbreviated session.

Investors examined an apparent improvement in Midwest business conditions, which perhaps dampened demand for the safety of government debt. The Chicago Purchasing Managers' index, which measures business conditions across Illinois, Michigan and Indiana, jumped to 57.9 in August from 50.8 in July.

The index is also considered a precursor to the Institute for Supply Management's manufacturing survey on Tuesday. Strength in manufacturing, fed by demand from abroad, could help support the overall economy and possibly prevent a further slowdown.

And the Reuters/University of Michigan index on consumer sentiment rose to its highest level in five months. Upbeat consumers could ramp up their spending, thereby helping the overall economy.

Treasury investors didn't appear cheered by a Commerce Department report showing that personal incomes fell by 0.7 percent in July. Analysts polled by Thomson IFR had expected a more modest decline of 0.1 percent, even with the effect of tax rebate checks dissipating.

The government also reported that consumer spending rose a modest 0.2 percent, as expected.

Ultimately, observers said, with the Treasury market closing early ahead of the long Labor Day weekend, at 2 p.m. Eastern time, traders preferred to take profits and volume was light, which can skew trading.

"It's pretty much just investors exiting positions going into a long weekend," said Matthew Dalton, chief executive of Belle Haven Investments in White Plains, N.Y. "I wouldn't read a ton into it because the volume was so light."

In late trading, the benchmark 10-year Treasury note fell 9/32 to 101 15/32. Its yield rose to 3.82 percent from 3.79 percent late Thursday, according to BGCantor Market Data. Yields move in the opposite direction from prices.

The 30-year long bond fell. It slipped 26/32 to 101 9/32 while its yield rose to 4.42 percent from 4.38 percent on Thursday.

The 2-year note was essentially unchanged at 100, while its yield fell to 2.36 percent, from 2.37 percent late Thursday.

The 3-month Treasury bill's yield traded flat at 1.72 percent, and its discount rate was unchanged at 1.70 percent.