After seeing some strength in early trading, treasuries moved modestly lower over the course of the trading session on Wednesday.
Bond prices pulled back off their highs and into red before moving roughly sideways. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1 basis point to 2.23 percent after hitting a low of 2.198 percent.
With the slight increase on the day, the ten-year yield extended the upward trend seen over the past several sessions, reaching its highest closing level in well over a month.
The pullback by treasuries was primarily in reaction to remarks by Federal Reserve Chair Janet Yellen about the outlook for interest rates.
In testimony before the House Financial Services Committee, Yellen said a December interest rate would be a “live possibility” if the incoming economic data supports such a move.
Yellen stressed that no decision has been made but said raising rates “in a timely fashion” is the “prudent thing to do.”
The Fed Chief’s remarks came on the heels of some upbeat U.S. economic data hinting at a possible December rate hike.
Before the start of trading, payroll processor ADP released a report showing that private sector employment increased roughly in line with economist estimates in October.
ADP said the private sector added 182,000 jobs in October following a downwardly revised increase of 190,000 jobs in September. Economists had expected private sector employment to climb by about 180,000 jobs.
A separate report from the Institute for Supply Management said activity in the service sector unexpectedly grew at a faster rate in October.
The ISM said its non-manufacturing index climbed to 59.1 in October from 56.9 in September, with a reading above 50 indicating growth in the service sector. The index has been expected to dip to 56.5.
James Knightley, an economist at ING Bank, said, “While the manufacturing sector remains under pressure from dollar strength and external demand weakness, the rest of the U.S. economy is looking in good shape.”
“If this is backed up by a respectable payrolls report (and hopefully a rise in average earnings) on Friday, it will look increasingly likely that the Federal Reserve will come down in favor of hiking in December,” he added.
The data increased the focus on Friday’s monthly jobs report from the Labor Department, which includes both public and private sector jobs.
Treasuries remained stuck in the red following the release of the results of the Treasury Department’s postponed auction of $26 billion worth of two-year notes, which attracted below average demand.
The two-year note auction drew a high yield of 0.824 percent and a bid-to-cover ratio of 3.01, while the ten previous two-year note auctions had an average bid-to-cover ratio of 3.37.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
The two-year note auction was originally scheduled for October 27th but was postponed as a result of the debt limit impasse.
The rescheduled auction was announced last Friday after lawmakers approved a two-year budget agreement that also extended the nation’s debt limit through 2017.
Reports on weekly jobless claims and labor productivity and costs may attract some attention on Thursday, but traders are likely to be looking ahead to the monthly jobs report due on Friday.
The material has been provided by InstaForex Company – www.instaforex.com