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Treasuries Close Slightly Higher But Well Off Best Levels

Treasuries moved to the upside early in the session on Thursday but gave back ground over the course of the trading day.

Bond prices pulled back well off their best levels but still closed slightly higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by nearly a basis point to 3.035 percent after hitting a two-month intraday low of 3.008 percent.

Treasuries managed to remain modestly higher late in the session even as the minutes of the Federal Reserve's monetary policy meeting held earlier this month seemed to reinforce expectations for another quarter-point increase in interest rates next month.

The minutes of the Federal Open Market Committee meeting said almost all participants agreed another increase in rates was "likely to be warranted fairly soon."

The Fed noted a near-term rate hike would be dependent on incoming information on the labor market and inflation coming in line with or stronger than current expectations.

CME Group's FedWatch tool currently indicates an 82.7 percent chance the Fed will raise rates to a range of 2.25 to 2.50 percent at the two-day meeting scheduled for December 18th and 19th.

However, the minutes noted a few participants continued to favor gradual increases in rates but expressed uncertainty about the timing of such increases.

A couple of participants also noted rates might currently be near a neutral level and warned further increases could unduly slow economic growth and put downward pressure on inflation and inflation expectations.

In remarks to the Economic Club of New York on Wednesday, Fed Chairman Jerome Powell described the current level of interest rates as "just below" neutral.

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy--that is, neither speeding up nor slowing down growth," Powell said.

The latest remarks seemed to conflict with comments Powell made early last month, when he described rates as a "long way from neutral."

The early upward move by treasuries came following the release of some disappointing economic data, including a report from the the National Association of Realtors unexpectedly showing a substantial decrease in pending home sales in the month of October.

NAR said its pending home sales index plunged by 2.6 percent to 102.1 in October after climbing by 0.7 percent to an upwardly revised 104.8 in September. With the steep drop, the index fell to its lowest level since mid-2014.

The sharp pullback surprised economists, who had expected pending home sales to rise by 0.5 percent, matching the increase originally reported for the previous month.

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.

The Labor Department also released a report showing initial jobless claims unexpectedly rose to a six-month high in the week ended November 24th.

The report said initial jobless claims climbed to 234,000, an increase of 10,000 from the previous week's unrevised level of 224,000. Economists had expected jobless claims to edge down to 220,000.

With another unexpected increase, jobless claims reached their highest level since hitting a matching figure in the week ended May 19th.

Meanwhile, a separate report from the Commerce Department showed personal income and spending both increased by more than anticipated in the month of October.

The Commerce Department said personal income climbed by 0.5 percent in October after edging up by 0.2 percent in September. Economists had expected income to rise by 0.4 percent.

Additionally, the report said personal spending advanced by 0.6 percent in October after rising by 0.2 percent in the previous month. Spending had also been expected to increase by 0.4 percent.

The economic calendar is relatively quiet on Friday, although traders are likely to keep an eye on a report on Chicago-area business activity.

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