Treasuries Close Modestly Higher Following Two Days Of Weakness

(RTTNews) - After moving notably lower over the course of the two previous sessions, treasuries moved modestly higher during trading on Friday.

Bond prices fluctuated over the course of the trading day before eventually closing slightly higher. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 2.868 percent.

The modestly higher close for treasuries came as the weakness seen over the two previous sessions pushed yields to more attractive levels.

Buying interest was somewhat subdued, however, as news that the House approved the recently revealed budget plan added to concerns about the outlook for the Federal Reserve's stimulus plan.

The House voted 332 to 94 in favor of the budget bill, which was outlined Tuesday by Rep. Paul Ryan, R-Wis., and Senator Patty Murray, D-Wash.

The budget plan erases the threat of another government shutdown in January and also addresses some of the automatic spending cuts known as the sequester.

Meanwhile, traders largely shrugged off a report from the Labor Department showing a modest decrease in producer prices in the month of November.

The Labor Department said its producer price index edged down by 0.1 percent in November following a 0.2 percent drop in October. The modest decrease matched economist estimates.

"Wholesale prices fell for the third straight month on lower energy and motor vehicle costs, showing little pipeline pressure for increased consumer prices," said Jay Morelock, an economist at FTN Financial.

He added, "With crude and intermediate goods falling as well, the Fed will not be concerned with upward price pressure as they head into their meeting next week to consider tapering asset purchases."

Core producer prices, which exclude food and energy prices, inched up by 0.1 percent in November after rising by 0.2 percent in October. The uptick in core prices also matched expectations.

The Federal Reserve will take center stage next week, with the central bank due to announce its latest monetary policy decision on Wednesday.

Most economists do not expect the Fed to announce plans to begin scaling back its asset purchases, but traders will closely analyze the accompanying statement for any signals regarding future tapering.

While the Fed meeting will be in focus, traders are also likely to keep an eye on the release of reports on industrial production, housing starts, existing home sales, and regional manufacturing activity.