(Adds comment, details, updates prices)
* U.S. ISM non-manufacturing index drops, pressures yields
* September rate hike declines further
By Gertrude Chavez-Dreyfuss
NEW YORK, Sept 6 U.S. Treasury yields fell
across the board on Tuesday, with most maturities falling to
two-week lows, after a weaker-than-expected reading of a U.S.
services sector index for August diminished expectations the
Federal Reserve will raise interest rates when it meets next
Yields, which move inversely to prices, fell the most in the
intermediate sector as U.S. five- and seven-year notes slid
nearly seven basis points from late Friday.
The U.S. services report came after a much
softer-than-forecast nonfarm payrolls report on Friday, which
showed U.S. employers added 151,000 jobs in August, lower than
the 180,000 expected by economists polled by Reuters.
Tuesday's Institute for Supply Management report on
service-sector activity showed a drop in the index to 51.4, down
from 55.5 in July and much lower than the consensus expectation
for a reading of 55.7. The drop in the ISM headline index was
the steepest since November 2008.
Fed funds futures prices indicated investors see just a 15
percent chance of a rate hike at September's Fed meeting, down
from 30 percent before the ISM data.
The perceived likelihood of a December rate increase,
however, inched up to 50.8 percent in midday trading from about
47 percent immediately after the ISM data.
"One data point does not make a trend, thus, given industry
growth remains in positive territory, albeit minimally above 50,
policy officials are unlikely to sound the alarm bell but simply
reiterate the need for further information to more clearly
understand the ... trajectory of the U.S. economy," said Lindsey
Piegza, chief economist at Stifel Fixed Income in Chicago.
"In other words, the recent weakness in the ISM
Non-Manufacturing report will only exacerbate the uncertainty
among Fed officials as to what the appropriate next move should
be, as well as the timing of said adjustment to policy."
In midday New York trading, benchmark 10-year Treasury notes
were up 16/32 in price to yield 1.540 percent, from
1.597 percent on Friday. Yields fell as low as 1.536 percent,
their weakest since Aug. 26.
The 30-year Treasury bond rose 31/32 in price to
yield 2.226 percent, from 2.272 percent late on Friday. Yields
earlier slid to a two-week low of 2.223 percent.
Two-year notes were up 3/32 in price to yield
0.738 percent, from Friday's 0.794 percent.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith
Mazzilli and James Dalgleish)