Treasuries Close Firmly Positive After Yellen's Speech

(RTTNews) - Treasuries moved notably higher over the course of the trading session on Tuesday due in part to comments from Federal Reserve Chair Janet Yellen.

After moving modestly higher in morning trading, bond prices saw further upside after Yellen's remarks. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 5.6 basis points to 1.814 percent.

The strength among treasuries came as Yellen's speech to the Economic Club of New York was seen as dovish regarding the outlook for interest rates.

In prepared remarks, Yellen said she considers it appropriate for the Fed to proceed cautiously in adjusting monetary policy given the risks to the economic outlook.

The Fed chief said the caution is especially warranted because the central bank's ability to use conventional monetary policy to respond to economic disturbances is asymmetric with rates still at such low levels.

"If economic conditions were to strengthen considerably more than currently expected, the FOMC could readily raise its target range for the federal funds rate to stabilize the economy," Yellen said.

She added, "By contrast, if the expansion was to falter or if inflation was to remain stubbornly low, the FOMC would be able to provide only a modest degree of additional stimulus by cutting the federal funds rate back to near zero."

Yellen also repeatedly reiterated her stance that only gradual increases in interest rates are likely to be warranted in coming years.

The speech largely offset recent speculation that the Fed will raise interest rates at its next meeting toward the end of April.

Meanwhile, the Treasury Department sold $34 billion worth of five-year notes on the day, attracting slightly below average demand.

The five-year note auction drew a high yield of 1.335 percent and a bid-to-cover ratio of 2.38, while the ten previous five-year auctions had an average bid-to-cover ratio of 2.45.

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

Finishing off this week's series of long-term securities auctions, the Treasury is due to sell $28 billion worth of seven-year notes on Wednesday.

Trading on Wednesday could also be impacted by the release of payroll processor ADP's report on private sector employment in the month of March.