Treasuries saw considerable weakness during trading on Tuesday, as traders expressed optimism about the possibility of further monetary stimulus in Europe.
Bond prices came under pressure in early trading and remained stuck firmly in negative territory throughout the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 7 basis points to a one-month closing high of 1.628 percent.
The weakness among treasuries came amid expectations that the European Central Bank will unveil additional measures to address the ongoing debt crisis following the release of disappointing economic data from the region.
Data from Europe showed that the Italian economy shrank in the second quarter, marking the fourth consecutive quarter of contraction. A separate report showed a steeper than expected drop in German factory orders in June.
Traders also reacted to comments by Boston Federal Reserve President Eric Rosengren, who called for an "open-ended" quantitative easing program to boost economic growth during an interview with CNBC.
"What I would argue for, actually, is to have it open ended. That we focus on economic outcomes," Rosengren said. "I would argue that if we do a quantitative easing program, again, we should be using economic outcomes as what we're trying to get."
Treasuries saw continued weakness following the release of the results of the Treasury Department's auction of $32 billion worth of three-year notes.
The three-year note auction drew a high yield of 0.370 percent and a bid-to-cover ratio of 3.51, while the ten previous three-year note auctions had an average bid-to-cover ratio of 3.49.
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 Wednesday could be impacted by the release of the Labor Department's report on labor productivity and costs in the second quarter. Productivity is expected to increase by 1.3 percent, while unit labor costs are expected to rise by 0.9 percent.
Bond traders are also likely to keep an eye on the results of the Treasury Department's auction of $24 billion worth of ten-year notes.
by RTT Staff Writer
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