Treasuries See Further Downside As Traders Digest Fed Taper

(RTTNews) - After ending the previous session in the red following the Federal Reserve's taper announcement, treasuries saw some further downside during trading on Thursday.

Bond prices came under pressure in early trading and remained stuck in negative territory throughout the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 4 basis points to 2.925 percent.

With the increase on the day, the ten-year yield added to the 4.2 basis point gain posted on Wednesday, reaching a new three-month closing high.

The weakness among treasuries came as traders continued to digest yesterday's news that the Federal Reserve is reducing its asset purchase program by $10 billion per month beginning in January.

The Fed said it will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month and add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.

The central bank attributed the decision to the improvement in economic activity and labor market conditions seen since it began the stimulus program.

Treasuries remained stuck in the red following the release of the results of the Treasury Department's auction of $29 billion worth of seven-year notes.

The seven-year note auction drew a high yield of 2.385 percent and a bid-to-cover ratio of 2.45, while the ten previous seven-year note auctions had an average bid-to-cover ratio of 2.57.

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

Peter Boockvar, managing director at the Lindsey Group, said, "Following yesterday's very poor 5-year note auction, likely due to a wait and see approach ahead of the FOMC statement, today's 7-year auction was not much better."

Meanwhile, traders largely shrugged off the release of a batch of disappointing economic data, including a report from the National Association of Realtors showing a bigger than expected drop in existing home sales in November.

Following the slew of data released this morning, the economic calendar for Friday is relatively light, although the final report on third quarter GDP may attract some attention.