Treasuries Close Modestly Lower After Seeing Early Strength

(RTTNews) - In a mirror image of the performance seen in the previous session, treasuries saw early strength on Wednesday but turned lower over the course of the session.

Bond prices pulled back well off their early highs to finish the session modestly in the red. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.2 basis points to 2.282 percent after hitting a low of 2.189 percent.

With the increase, the ten-year yield more than offset the 1.4 basis point loss posted on Tuesday to reach its highest closing level in over five months.

The early strength among treasuries came following the release of a report from the Commerce Department showing that U.S. retail sales were unexpectedly flat in April.

The Commerce Department said retail sales were virtually unchanged in April compared to economist estimates for a 0.2 percent increase.

Excluding a drop in auto sales, retail sales inched up by 0.1 percent in April, although that was still well short of the 0.5 percent increase expected by economists.

The data reinforced the view that the Federal Reserve is not likely to raise interest rates next month, but treasuries were unable to sustain the upward move.

Bond prices subsequently came under pressure over the course of the session, shrugging off a brief reprieve following the release of the results of the Treasury Department's auction of $24 billion worth of ten-year notes.

The ten-year note auction drew a high yield of 2.237 percent and a bid-to-cover ratio of 2.72, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 2.66.

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 pullback by treasuries was partly attributed to the continued influx of supply on Thursday with an auction of $16 billion worth of thirty-year bonds.

Along with the bond auction, trading on Thursday may be impacted by the release of reports on weekly jobless claims and producer price inflation.