After turning higher over the course of the previous session, treasuries saw some further upside on Tuesday but closed well off their highs for the session.
Bond prices showed a strong upward move in morning trading but gave back some ground in the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by 1.6 basis points to 1.879 percent after hitting a low of 1.843 percent.
While the ten-year yield finished the session well off its worst levels of the day, it still set a new one-month closing low.
Treasuries showed a strong move to the upside in morning trading as Federal Reserve Chairman Ben Bernanke testified before the Senate Banking Committee.
In his prepared remarks, Bernanke noted that the Fed's highly accommodative monetary policy has several potential costs and risks, including leading to higher inflation.
However, he said the Fed is closely monitoring the potential risks and said they are outweighed by the benefits of promoting a stronger economic recovery and more-rapid job creation.
Bernanke's remarks were seen as a reflective of the changing conversation within the Fed, although James Knightley, senior economist at ING, said the central bank is unlikely to announce a shift in monetary policy at its March meeting due to the economic risks from the sequester.
"Furthermore, the newsflow from Italy highlights the fact that the Eurozone story is still far from resolved, which suggests it is not just domestic risks that the Fed has to follow," Knightley said.
The pullback by treasuries came as traders turned their attention to upbeat reports on new home sales and consumer confidence following the end of Bernanke's testimony
The Commerce Department said new home sales surged up by 15.6 percent to a seasonally adjusted annual rate of 437,000 in January from the revised December rate of 378,000. With the increase, sales rose to their highest rate since July of 2008.
Economists had been expecting new home sales to show a much more modest increase to an annual rate of 381,000 from the 369,000 originally reported for the previous month.
A separate report from the Conference Board showed that its consumer confidence index jumped to 69.6 in February from a revised 58.4 in January. Economists had been expecting the index to climb to 61.0 from the 58.6 that had been reported for the previous month.
Meanwhile, traders largely shrugged off the results of the Treasury Department's auction of $35 billion worth of five-year notes, which attracted average demand.
The five-year note auction drew a high yield of 0.777 percent and a bid-to-cover ratio of 2.85, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.86.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
Another day of Congressional testimony from Bernanke may attract attention on Wednesday, with the Fed Chief due to appear before the House Financial Services Committee.
Traders are also likely to keep an eye on a pair of economic reports on durable goods orders and pending home sales in the month of January.
Additionally, finishing off this week's series of long-term securities auction, the Treasury is due to sell $29 billion worth of seven-year notes on Wednesday.
by RTT Staff Writer
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