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Treasuries Close In The Red After Seeing Early Strength

After extending a recent move to the upside in early trading, treasuries turned lower over the course of the trading session on Wednesday.

Bond prices pulled back well off their early highs and slid into negative territory in afternoon trading. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.4 basis points to 1.903 percent.

With the turnaround on the day, the ten-year yield moved higher after closing lower in the five previous sessions, bouncing off a one-month closing low.

Optimism that the Federal Reserve will maintain its asset purchase program contributed to the early strength among treasuries, although traders seemed somewhat reluctant to continue buying bonds following the recent upward move.

Treasuries subsequently turned lower following the release of a pair of upbeat reports on durable goods orders and pending home sales.

While the Commerce Department's durable goods orders report showed that total orders fell by more than anticipated, orders actually rose by much more than expected when excluding orders for transportation equipment.

Excluding a 19.8 percent drop in orders for transportation equipment, durable goods orders rose by 1.9 percent in January compared to economist estimates for a 0.2 percent increase.

The report also showed a 6.3 percent jump in orders for non-defense capital goods excluding aircraft, which is seen as an indicator of business spending.

A separate report from the National Association of Realtors showed a much bigger than expected increase by its pending home sales index, which reached its highest level since April of 2010 in January.

NAR said its pending home sales index rose by 4.5 percent to 105.9 in January after falling by 1.9 percent to 101.3 in December. Economists had expected the index to increase by 3.0 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

Treasuries saw further downside after the Treasury Department released the results of its auction of $29 billion worth of seven-year notes.

The seven-year note auction drew a high yield of 1.26 percent and a bid-to-cover ratio of 2.65, while the ten previous seven-year note auctions drew an average yield of 2.70 percent.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Economic data may attract some attention on Thursday, with the Commerce Department due to release its revised estimate of fourth quarter GDP. Reports on weekly jobless claims and Chicago area business activity could also impact trading.

by RTT Staff Writer

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