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Treasuries Show Modest Move Back To The Upside

Treasuries saw modest strength during the trading day on Monday, regaining some ground after moving notably lower last Friday.

Bond prices initially moved to the upside but pulled back off their best levels as the day progressed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by 1.3 basis points to 3.201 percent.

The modest rebound by treasuries may have reflected their appeal as a safe haven ahead of Tuesday's midterm elections, which will decide control of both the House and Senate.

Democrats are seen as having a much better chance to claim a majority in the House than in the Senate, but controlling the lower chamber would still allow Democratic lawmakers to hinder President Donald Trump's agenda.

Traders may also have been looking ahead to the Federal Reserve's looming monetary policy announcement, with the Fed due to announce is latest decision on Thursday.

The Fed is widely expected to leave interest rates unchanged, but traders will keep a close eye on the accompanying statement for clues about an expected rate hike in December.

On the U.S. economic front, the Institute for Supply Management released a report showing a modest slowdown in the pace of growth in the service sector in the month of October.

The ISM said its non-manufacturing index dipped to 60.3 in October after climbing to 61.6 in September, although a reading above 50 still indicates growth in the service sector. Economists had expected the index to drop to 59.3.

Last month, the ISM said the non-manufacturing index unexpectedly rose in September, reaching its highest level since the inception of the composite index in 2008.

Treasuries gave back some ground following the release of the results of the Treasury Department's auction of $37 billion worth of three-year notes, which attracted below average demand.

The three-year note auction drew a high yield of 2.983 percent and a bid-to-cover ratio of 2.54, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.79.

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

Looking ahead, the Treasury is due to sell $27 billion worth of ten-year notes on Tuesday and $19 billion worth of thirty-year bonds on Wednesday.

Traders may stick to the sidelines amid a quiet day on the U.S. economic front on Tuesday as they await the results of the midterm elections.

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