Treasuries Show Modest Move To The Upside


Treasuries saw modest strength during trading on Wednesday, extending the notable upward move seen in the previous session.

Bond prices fluctuated after an early move to the upside but managed to remain in positive territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by 1.4 basis points to 4.012 percent.

The uptick by treasuries came as traders looked ahead to the release of a key report on consumer price inflation on Thursday.

Economists expect the report to show consumer prices rose by 0.2 percent in July, matching the uptick seen in June. Core consumer prices, which exclude food and energy prices, are also expected to rise by 0.2 percent for the second straight month.

The annual rate of consumer price growth is expected to accelerate to 3.3 percent in July from 3.0 percent in June, while the annual rate of core consumer price growth is expected to hold at 4.8 percent.

Traders will be looking for the report to reinforce expectations that the Federal Reserve will leave interest rates unchanged next month.

CME Group’s FedWatch Tool is currently indicating an 86.5 percent chance the Fed will leave rates unchanged in September.

Some buying interest was generated in reaction to the results of the Treasury Department’s auction of $38 billion worth of ten-year notes, which attracted above average demand.

The ten-year note auction drew a high yield of 3.999 percent and a bid-to-cover ratio of 2.56, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 2.41.

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 is likely to be driven by reaction to the report on consumer prices, although a report on weekly jobless claims may also attract some attention.

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