Treasuries moved moderately lower during trading on Tuesday, with the weakness among bonds coming amid a rally on Wall Street.
After seeing modest weakness in morning trading, bond prices saw some volatility in the afternoon but remained in the red. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.6 basis points to 1.62 percent.
The weakness among treasuries came as stocks moved sharply higher on the day, driving the major averages to their highest levels in over a month.
Stocks benefited from optimism that the Federal Reserve will announce further measures to stimulate the sluggish economy following the conclusion of its two-day monetary policy meeting on Wednesday.
A recent batch of disappointing U.S. economic data has contributed to the optimism about further stimulus along with continued concerns about the impact of the ongoing financial crisis in Europe.
In recent Congressional testimony Fed Chairman Ben Bernanke said the central bank remains prepared to take action if financial stresses escalate but made no explicit reference to further easing measures.
Many analysts expect the Fed to announce an extension of "Operation Twist," which involves replacing short-term securities in the Fed's bond portfolio with longer-term securities in an effort to push already low long-term interest rates even lower.
On the economic front, the Commerce Department released a report showing a decrease in housing starts in the month of May, although the drop came from a notably upwardly revised level in April.
The report showed that housing starts fell 4.8 percent to an annual rate of 708,000 in May from the revised April estimate of 744,000. Economists had expected housing starts to edge up to 720,000 from the 717,000 originally reported for the previous month.
At the same time, building permits, an indicator of future housing activity, jumped 7.9 percent to an annual rate of 780,000 in May from the revised April rate of 723,000. Building permits had been expected to climb to 736,000.
Trading on Wednesday is likely to be driven by reaction to the Fed's monetary policy announcement, with the markets likely to see considerable volatility following the release of the statement regardless of whether the central bank reveals any further stimulus.
Following the release of the statement, the Fed's revised economic forecasts may attract some attention along with Bernanke's press conference.
by RTT Staff Writer
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