Treasuries Recover From Worst Levels But Remain Firmly Negative

Treasuries showed a notable move to the downside during trading on Wednesday, extending the pullback seen in the previous session.

Bond prices climbed off their worst levels late in the session but remained firmly negative. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 6.9 basis points to 2.893 percent.

The ten-year yield added to the 3.3 basis point uptick seen on Tuesday, ending the session at its highest closing level in almost a month.

Treasuries regained some ground but remained stuck in the red following the release of the minutes of the Federal Reserve’s July monetary policy meeting.

The Fed minutes reaffirmed the central bank’s plans to continue raising interest rates in an effort to return inflation to its 2 percent objective.

The minutes did not provide specific guidance regarding the pace of future rate hikes, noting that the extent of future policy tightening would depend on the implications of incoming data for the economic outlook and risks to the outlook.

The Fed did reveal that meeting participants believed it would be necessary to move to a “restrictive stance of policy” due to inflation remaining well above the Fed’s objective.

At the same time, the Fed said participants judged that it would eventually become appropriate to slow the pace interest rate hikes in order to assess the impacts of higher rates on economic activity and inflation.

The minutes showed some participants also expressed concerns the Fed could tighten the stance of policy by more than necessary to restore price stability.

Treasuries moved to the downside early in the day as the Commerce Department released a report showing U.S. retail sales came in flat in July amid pullbacks in gas station and auto sales.

The Commerce Department said retail sales were virtually unchanged in July after climbing by a downwardly revised 0.8 percent in June.

Economists had expected retail sales to inch up by 0.1 percent compared to the 1.0 percent jump originally reported for the previous month.

Excluding gas station and auto sales, however, retail sales rose by 0.7 percent in July, matching the increase seen in the previous month.

“Despite the flat headline reading, the core retail sales figures in July show the consumer has staying power as it entered Q3,” said Kathy Bostjancic, Chief U.S. Economist at Oxford Economics.

She added, “Spending will receive a further boost in the coming months as consumer goods and energy price gains continue to ease.”

Treasuries remained under pressure as the Treasury revealed this month’s auction of $15 billion worth of twenty-year bonds attracted well below average demand.

The twenty-year bond auction drew a high yield of 3.380 percent and a bid-to-cover ratio of 2.30, while the ten previous twenty-year bond auctions had an average bid-to-cover ratio of 2.54.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Trading on Thursday may be impacted by reaction to a slew of U.S. economic data, including reports on weekly jobless claims, Philadelphia-area manufacturing activity and existing home sales.

Source: Read Full Article