After seeing early weakness, treasuries staged a notable recovery over the course of the trading day on Wednesday, ending the session nearly flat.
Bond prices moved notably lower in early trading but managed to climb well off their worst levels. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day unchanged at 1.589 percent after reaching an early high of 1.63 percent.
The early weakness among treasuries came as traders cashed in on some of the recent strength in the bond markets, which pushed the ten-year yield down to a two-month closing low on Tuesday.
However, selling pressure waned following the release of a report from the Commerce Department showing that U.S. retail sales fell by more than expected in October.
The report said retail sales fell by 0.3 percent in October following an upwardly revised 1.3 percent increase in September. Economists had expected sales to edge down by 0.1 percent compared to the 1.1 percent growth originally reported for the previous month.
Excluding a drop in auto sales, retail sales came in unchanged in October compared to a 1.2 percent jump in September. However, ex-auto sales had been expected to rise by 0.2 percent.
Lingering concerns about the looming fiscal cliff contributed to the subsequent recovery by treasuries, with a familiar battle over higher taxes on wealthier Americans seen as increasingly likely to lead to continued gridlock on Capitol Hill.
Without action by Congress, approximately $600 billion in automatic tax increases and government spending cuts are due to go into effect at the end of the year.
In remarks during his first post-election press conference, President Barack Obama initially said he would not extend the Bush-era tax cuts for the top 2 percent of earners, although he later said that he was open to new ideas to raise revenues.
Meanwhile, the minutes of the Federal Reserve's most recent monetary policy meeting showed that the central bank debated changing the way it communicates its outlook on interest rates.
During the meeting, the Fed decided to continue purchasing $40 billion worth of mortgage-backed securities per month but gave no indication it would expand the quantitative easing program before the end of the year.
The central bank also reiterated that economic conditions are likely to warrant exceptionally low interest rates at least through mid-2015.
The minutes of the meeting also showed that part of the Fed's discussion centered on whether to set specific numbers for inflation and unemployment that would trigger the start of tightening measures.
Trading on Thursday could be impacted by a batch of U.S. economic data, with traders likely to keep an eye on reports on weekly jobless claims, consumer price inflation, and manufacturing activity in the New York and Philadelphia areas.
by RTT Staff Writer
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