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Treasuries Move Back To The Upside After Powell Meets With Trump

After moving notably lower over the two previous sessions, treasuries moved back to the upside during the trading day on Tuesday.

Bond prices gave back ground after an early move to the upside but remained in positive territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.2 basis points to 2.702 percent.

The early rebound by treasuries came on the heels of news Federal Reserve Chairman Jerome Powell met with President Donald Trump at the White House on Monday, with the central bank chief telling the president monetary policy decisions will remain non-political.

A statement from the Fed said Powell and Trump had an informal dinner to discuss recent economic developments and the outlook for growth, employment and inflation.

Fed Vice Chairman Richard Clarida and Treasury Secretary Steven Mnuchin also attended the meeting, which came after months of Trump criticizing the central bank for raising interest rates.

The Fed said Powell did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook.

Powell also told Trump the Fed's interest rate decisions will based solely on "careful, objective and non-political analysis."

The meeting between Powell and Trump, which was the first since the Fed chief was sworn in, comes after the central bank indicated last week it will take a "patient" approach to monetary policy.

Treasuries saw some further upside after the Institute for Supply Management released a report showing activity in the U.S. service sector grew at a slower rate in the month of January.

The ISM said its non-manufacturing index fell to 56.7 in January from an upwardly revised 58.0 in December, although a reading above 50 still indicates growth in the service sector.

Economists had expected the non-manufacturing index to dip to 57.1 from the 57.6 originally reported for the previous month.

With the bigger than expected decrease, the index dropped to its lowest level since a matching reading in July of last year.

"Respondents are concerned about the impacts of the government shutdown but remain mostly optimistic about overall business conditions," said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee.

Meanwhile, traders largely shrugged off results of the Treasury Department's auction of $38 billion worth of three-year notes, which attracted below average demand.

The three-year note auction drew a high yield of 2.502 percent and a bid-to-cover ratio of 2.55, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.64.

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 Wednesday and $19 billion worth of thirty-year bonds on Thursday.

Data on the U.S. trade deficit in the month of November is due to be released on Wednesday, although the delayed report may be viewed as old news.

The Labor Department is also scheduled to release its preliminary report on labor productivity and unit labor costs in the fourth quarter.

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