Treasuries Show Modest Move To The Upside

(RTTNews) - After initially showing a lack of direction, treasuries moved modestly higher over the course of the trading session on Tuesday.

Bond prices climbed into positive territory in afternoon trading after spending the morning lingering near the unchanged line. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dipped by 1.8 basis points to 2.814 percent.

The modest strength that emerged among treasuries came as Chicago Federal Reserve President Charles Evans reiterated support for gradually raising interest rates.

"I think we have the opportunity to more patiently read—and react to—the incoming data," Evans said in a speech at a Chicago Rotary Club Luncheon.

He added, "That is, I think we can undertake more moderate monetary policy adjustments today than often was the case in the past."

Evans also said the risks of the economy overheating are "not particularly high," noting that statistical evidence indicates that the linkage between unemployment and inflation is weaker.

In remarks earlier in the day, San Francisco Fed President John Williams said he is not currently worried about inflation but argued the Fed needs to keep raising rates to keep the economy from overheating.

Traders largely seemed to shrug off a report from the Commerce Department showing a rebound in housing starts in the month of March.

The report said housing starts jumped by 1.9 percent to an annual rate of 1.319 million in March after tumbling by 3.3 percent to a revised 1.295 million in February.

Economists had expected housing starts to increase by 2.1 percent to a rate of 1.262 million from the 1.236 million originally reported for the previous month.

The Commerce Department said building permits also surged up by 2.5 percent to an annual rate of 1.354 million in March after slumping by 4.1 percent to a revised 1.321 million in February.

Building permits, an indicator of future housing demand, had been expected to climb by 1.9 percent to a rate of 1.323 million from the 1.298 million originally reported for the previous month.

A separate report from the Federal Reserve showed industrial production rose by more than expected in the month of March amid a substantial rebound in utilities output.

The Fed said industrial production climbed by 0.5 percent in March after surging up by a revised 1.0 percent in February. Economists had expected production to increase by 0.4 percent.

Trading on Wednesday may be impacted by reaction to the Fed's Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts that may shed some additional light on the outlook for interest rates.