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By Rom Badilla, CFA – Bond Trader and BondSquawker

Today’s economic data releases suggest that the economy is on the road to recovery. The Institute for Supply Management (ISM) released that the manufacturing sector continues to improve as the index came in at its highest level since mid-1994. The index for March revealed a reading of 60.4 versus a survey of 60.0. The index is above the prior month’s reading of 59.6. A number above 50 generally indicates economic expansion.

As a result, U.S. Treasuries sold off as yields across the curve rose on Monday with the 5-year under-performing the most. The yield on the 5-Year increased almost 5 basis points to close out the opening session at 2.46 percent. The wings of the curve widened 3-4 basis points as the 2-Year ended at a yield of 0.99 percent and the the yield on the 10-Year finished at 3.69 percent. The yield on the Long Bond managed to inch only a basis point higher to close at 4.53.

U.S. Treasury Yield Curve 1-Day Change

The spread or yield advantage over comparable maturity Treasuries (which represents default risk), on corporate bonds were generally mixed today. The Bank of America Merrill Lynch U.S. Corporate Index, which comprises over 4000 high grade corporate bonds, closed out today at a spread of 157 basis points, an increase of 2 from the prior close. Conversely, the 2000 plus bonds in the BofA Merrill Lynch High Yield Master Index rallied today as the spread decreased by 4 to 557 basis points. The spread on the High Yield Master Index has widened 15 basis points from the 2010 low of 542 experienced on April 26th.

BofA Merrill High Yield Master Index – Year-to-Date Historical Chart

Greek bonds rallied on the day after yesterday’s rescue aid announcement. The advance was led by the front-end of the curve as the yield on the 2-Year finished at 10.28 percent, a decline of 244 basis points according to Bloomberg data. 5-Year Greek bond yields declined 26 basis points 10.37 percent while the yield on the 10-Year closed the day at 8.50 percent, a drop of 46 basis points.

Stocks recaptured much of the losses from Friday by rallying today. The S&P 500 increased by 1.3 percent to 1202.26. The Volatility Index ended at 20.19, a drop of 8.4 percent from last week’s close.

The Dollar Index gained 0.6 percent to 82.358 while the Euro continues to drop. Though, the Euro bounced off of its one year low of 1.3175 and managed to end the day at 1.3195, a 0.4 percent drop from Friday’s close.

Gold spot contracts advanced again by rallying 0.3 percent to 1182.18.