Treasuries Move Modestly Higher Following Rosengren Remarks

(RTTNews) - Treasuries moved modestly higher during trading on Tuesday, extending the upward move seen over the course of the previous session.

After initially showing some volatility, bond prices eventually climbed more firmly into positive territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.4 basis points to 2.937 percent.

With the modest drop on the day, the ten-year yield continued to pull back off the two-year closing high that was set on New Year's Eve.

The modest strength among treasuries was partly due to comments from Boston Federal Reserve President Eric Rosengren, who said the Fed should gradually scale back its asset purchases.

"As the economy continues to improve, we should reduce and ultimately remove the unusual support that the Federal Reserve's monetary policy has provided," Rosengren said in a speech in Hartford, Connecticut. "But this support should be removed only gradually."

He added, "This recovery has already been too slow, and we do not want premature tightening of monetary policy to delay the return to more normal economic conditions."

Rosengren argued that very gradual normalization would be appropriate given that the unemployment rate remains unusually high and the inflation rate remains unusually low.

The Boston Fed President voted against the Fed's decision to begin scaling back its stimulus at the December meeting but is not a voting member of the Federal Open Market Committee this year.

Meanwhile, bond prices initially pulled back following the release of the results of the Treasury Department's auction of $30 billion worth of three-year notes but moved back to the upside shortly afterward.

The three-year note auction drew a high yield of 0.799 percent and a bid-to-cover ratio of 3.25, while the ten previous three-year note auctions had an average bid-to-cover ratio of 3.30.

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

Trading on Wednesday may be impacted by the release of ADP's report on private sector employment as well as the minutes of the Fed's December meeting.

Bond traders are also likely to keep an eye on the results of the Treasury's auction of $21 billion worth of ten-year notes.