After trending lower over the past several sessions, treasuries regained some ground over the course of the trading day on Tuesday.
Bond prices saw initial weakness but managed to turn higher as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by 2 basis points to 2.322 percent.
With the modest drop on the day, the ten-year yield pulled back off the more than three-month closing high set on Monday.
The modest strength among treasuries was partly due to bargain hunting following the recent weakness, which came amid concerns about an increase in interest rates.
Last Friday’s better than expected October jobs report has led to increased speculation that the Federal Reserve will finally raise interest rates at its meeting next month.
Mikael Olai Milh?j, an analyst at Danske Bank, said, “Recent comments and speeches from FOMC members suggest that the doves are ‘ready to fly’ as well, as they seem to support – or at least accept – the first Fed hike since 2006 at the next FOMC meeting in December.”
“In our view, the new battleground for the FOMC members will be how the Fed should proceed once it has begun the new tightening cycle,” he added. “We look for four additional hikes in 2016, i.e. in total five hikes from now until year-end 2016.”
Treasuries saw continued strength after the Treasury Department’s auction of $24 billion worth of ten-year notes saw average demand.
The ten-year note auction drew a high yield of 2.304 percent and a bid-to-cover ratio of 2.58, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 2.59.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
On the U.S. economic front, the Labor Department released a report before the start of trading showing that import prices fell by slightly less than expected in October.
The Labor Department said import prices fell by 0.5 percent in October following a revised 0.6 percent drop in September.
Economists had expected prices to fall by 0.6 percent compared to the 0.1 percent decrease originally reported for the previous month.
The report also said export prices edged down by 0.2 percent in October after sliding by a revised 0.6 percent in September. Export prices had been expected to drop by 0.3 percent.
A separate report from the Commerce Department showed that wholesale inventories rose by much more than expected in September.
The report said wholesale inventories climbed by 0.5 percent in September after rising by an upwardly revised 0.3 percent in August. Economists had expected wholesale inventories to inch up by 0.1 percent.
Trading on Wednesday may be somewhat subdued due to the Veterans Day holiday, which sees banks closed and a lack of major U.S. economic data.
The material has been provided by InstaForex Company – www.instaforex.com