Treasuries See Further Downside Ahead Of Next Week's Fed Meeting


Treasuries moved moderately lower during trading on Thursday, extending the downward move seen in the previous session.

Bond prices regained some ground after an initial move to the downside but remained in negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.5 basis points to 3.518 percent.

The continued weakness among treasuries came amid ongoing uncertainty about the outlook for interest rates ahead of the Federal Reserve’s monetary policy meeting next week.

While the Fed is widely expected to slow the pace of interest rate hikes to 25 basis points, traders will pay close attention to the accompanying statement for clues about the outlook for further rate hikes.

Recent upbeat economic data has generated some optimism the Fed could engineer a soft landing but has also led to concerns the central bank will need to keep rates at elevated levels for longer than anticipated.

On the U.S. economic front, the Commerce Department released a report showing personal income increased in line with economist estimates in the month of December.

The report said personal income inched up by 0.2 percent in December after rising by a downwardly revised 0.3 percent in November.

Economists had expected personal spending to edge up by 0.2 percent compared to the 0.4 percent increase originally reported for the previous month.

Meanwhile, the Commerce Department said personal spending dipped by 0.2 percent in December after slipping by 0.1 percent in November. The modest decrease matched economist estimates.

The report also said core consumer prices, which exclude food and energy prices, rose by 0.3 percent in December after inching up by 0.2 percent in November.

The inflation reading, which is said to be preferred by the Fed, was expected to show another 0.2 percent uptick.

The Commerce Department said the annual rate of growth in core consumer prices slowed to 4.4 percent in December from 4.7 percent in November.

“With higher interest rates evidently weighing heavily on demand now, we expect core inflation to continue moderating this year, which will eventually persuade the Fed to begin cutting interest rates late this year,” said Paul Ashworth, Chief North America Economist at Capital Economics.

A separate report from the National Association of Realtors showed an unexpected rebound in pending home sales in December, while the University of Michigan upwardly revised its reading on consumer sentiment in January.

The Fed decision is likely to be in the spotlight next week, although traders are also likely to keep an eye on the monthly jobs report as well as reports on consumer confidence and manufacturing and service sector activity.

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