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Treasuries Give Back Ground Amid Lingering Interest Rate Worries


After trending higher over the past few sessions, treasuries showed a significant move back to the downside during trading on Tuesday.

Bond prices moved notably lower in morning trading and remained firmly negative throughout the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 9.3 basis points 3.599 percent.

The ten-year yield regained ground after ending the previous session at its lowest closing level in well over two months.

The pullback by treasuries partly reflected lingering uncertainty about the outlook for interest rates following last Friday’s stronger-than-expected jobs data.

While the Federal Reserve is widely expected to slow the pace of interest rate hikes next week, continued labor market tightness and elevated inflation may still lead the central bank to raise rates higher than currently anticipated.

Adding to the worries about where rates will peak, the Institute for Supply Management released a report this morning showing U.S. service sector activity unexpectedly grew at an accelerated rate in the in the month of November.

The ISM said its services PMI climbed to 56.5 in November from 54.4 in October, with a reading above 50 indicating growth in the sector. The increase surprised economists, who had expected the index to dip to 53.1.

A separate report released by the Commerce Department showed new orders for U.S. manufactured goods jumped by more than expected in the month of October.

“The risks that the Fed might need to do more remain elevated and that is why this economy needs to head to a recession,” said Edward Moya, senior market analyst at OANDA.

He added, “This next recession however won’t be rescued by quick Fed easing or a fiscal response as that will fuel inflation risks.”

The U.S. economic calendar is relatively quiet on Tuesday, although traders are still likely to keep an eye on the Commerce Department’s report on the U.S. trade deficit in October.

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