Treasuries Fall Sharply Following Upbeat GDP Data, Disappointing Auction

(RTTNews) - Treasuries moved sharply lower over the course of the trading day on Tuesday, more than offsetting the modest strength seen in the two previous sessions.

Bond prices came under pressure in early trading and saw further downside as the day progressed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 9.5 basis points to 2.257 percent.

The early weakness among treasuries was partly due to the release of a report from the Commerce Department showing stronger than previously estimated third quarter GDP growth.

The Commerce Department said its final reading on third quarter GDP showed a 5.0 percent increase compared to the previously estimated 3.9 percent growth. Economists had expected the pace of GDP growth to be upwardly revised to 4.3 percent.

The stronger than expected growth reflected upward revisions to consumer spending, non-residential fixed investment and private inventory investment.

The GDP data along with an upbeat report on personal spending led to speculation about continued strength in the fourth quarter enticing the Federal Reserve to accelerate its plans to raise interest rates.

Treasuries saw further downside following the release of the results of the Treasury Department's auction of $35 billion worth of five-year notes, which attracted weak demand.

The five-year note auction drew a high yield of 1.739 percent and a bid-to-cover ratio of 2.39, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.77.

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 $29 billion worth of seven-year notes on Wednesday.

Trading on Wednesday could also be impacted by the Labor Department's weekly jobless claims report, although activity is likely to be subdued amid an abbreviated Christmas Eve session.