Treasuries saw notable strength during trading on Thursday, benefiting from lingering concerns about the looming fiscal cliff.
After moving sharply higher in morning trading, bond prices gave back some ground late in the session but still closed firmly positive. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4.3 basis points to 1.715 percent.
The strength among treasuries came amid continued concerns about whether lawmakers in Washington will be able to reach a budget agreement, with Senate Majority Leader Harry Reid, D-Nev., saying it "looks like" the country is headed over the fiscal cliff in a speech on the Senate floor.
Reid sought to blame House Speaker John Boehner, R-Ohio, for the predicament and once again urged the Republican leader to allow the House to vote on a Senate-approved bill extending the tax cuts on income up to $250,000 a year.
While President Barack Obama has returned to Washington after spending Christmas in Hawaii, traders seem pessimistic about the negotiations as the year-end deadline draws closer.
Unless Congress acts, approximately $600 billion in automatic tax increases and government spending cuts are due to go into effect at the end of the year.
However, treasuries pulled back off their highs in late trading on news that the House will reconvene Sunday evening, just a little over a day before the deadline.
Reflecting the potential impact of going over the cliff, the Conference Board released a report showing that U.S. consumer confidence fell to a four-month low in December amid a substantial deterioration in expectations for the months ahead.
The Conference Board said its consumer confidence index fell to 65.1 in December from a downwardly revised 71.5 in November. Economists had been expecting the index to dip to 70.0 from the 73.7 originally reported for the previous month.
Meanwhile, traders largely shrugged off a separate report from the Labor Department showing an unexpected drop in initial jobless claims in the week ended December 22nd.
The report said initial jobless claims fell to 350,000, a decrease of 12,000 from the previous week's revised figure of 362,000. The drop came as a surprise to economists, who had expected jobless claims to edge up to 365,000 from the 361,000 originally reported for the previous week.
The Commerce Department also released a report showing a rebound by November new home sales, which reached their highest level in over two years.
Developments in Washington are likely to remain in focus on Friday, although traders may keep an eye on reports on Chicago-area business activity and pending home sales.
by RTT Staff Writer
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