Treasuries Close Sharply Lower But Off Worst Levels Of The Day

(RTTNews) - Treasuries saw notable weakness during trading on Tuesday but ended the session well off their worst levels of the day.

After falling sharply in early trading, bond prices regained some ground but still closed firmly in the red. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 9.9 basis points to 2.848 percent.

The early weakness among treasuries was partly due to easing concerns about an imminent U.S. attack on Syria following President Barack Obama's decision to seek congressional approval before taking any military action.

With Congress still on recess until next Monday, the administration is expected to use the next week to try and rally support for the use of military force against Syria, which has drawn opposition from both sides of the aisle.

Further selling pressure was generated by the release of some upbeat U.S. economic data, including a report from the Institute for Supply Management showing an unexpected increase by its index of manufacturing activity.

The ISM said its purchasing managers index edged up to 55.7 in August from 55.4 in July, with a reading above 50 indicating an increase in manufacturing activity. The modest increase came as a surprise to economists, who had expected the index to dip to a reading of 53.8.

Amna Asaf, an economist at Capital Economics, said, "Overall, at 55.7, the headline index points to a further acceleration in GDP growth to around 3% annualized in the third quarter, up from 2.5% in the second."

"We doubt growth will be quite that strong, but clearly this is the sort of the news that could prompt the Fed to begin tapering its monthly asset purchases later this month," she added.

A separate report from the Commerce Department showed a bigger than expected increase in construction spending in the month of July.

Trading on Wednesday may be impacted by the release of the Commerce Department's report on the U.S. trade balance as well as the Fed's Beige Book.