Treasuries Show Notable Downturn After Seeing Early Strength

After failing to sustain an early move to the upside, treasuries showed a notable downturn over the course of the trading session on Monday.

Bond prices pulled back well off their early highs and firmly into negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose 4.4 basis points to 3.611 percent after hitting a low of 3.521 percent.

The ten-year yield continued to regain ground after ending last Wednesday’s trading at its lowest closing level in nearly three months.

The continued weakness among treasuries came as traders looked ahead to the Federal Reserve’s highly anticipated monetary policy announcement on Wednesday.

While the Fed is widely expected to slow the pace of interest rate hikes to 50 basis points, traders have recently expressed concerns about how much further the Fed will need to raise rates in order to contain inflation.

Traders are likely to pay close attention to the Fed’s accompanying statement, although a lot of key data will be released before the next meeting in late January/early February.

Treasuries saw further downside after the Treasury Department revealed this month’s auction of $32 billion worth of ten-year notes attracted below average demand.

The ten-year note auction drew a high yield of 3.625 percent and a bid-to-cover ratio of 2.31, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 2.43.

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 Tuesday is likely to be driven by reaction to a closely watched report on consumer price inflation, which could have a significant impact on the outlook for interest rates.