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Treasuries Close Roughly Flat After Seeing Initial Strength

After initially moving to the upside, treasuries pulled back over the course of the trading session on Wednesday to end the day roughly flat.

Bond prices spent the latter part of the session bouncing back and forth across the unchanged line. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day unchanged at 2.702 percent.

Treasuries initially benefited from uncertainty about U.S.-China trade talks after President Donald Trump's State of the Union address last night lacked details on progress in the talks.

However, buying interest wanted as Treasury Secretary Steven Mnuchin called last week's trade talks with Chinese Vice Premier Liu He "very productive."

"We are committed to continue these talks," Mnuchin said in an interview on CNBC's "Squawk Box." "We're putting in an enormous amount of effort to hit this deadline and get a deal. That's our objective."

With Trump saying a trade deal must include real structural change to end unfair trade practices, reduce the chronic trade deficit and protect American jobs, Mnuchin noted that he is part of a delegation heading to China next week for another round of talks.

In related news, the Commerce Department released a government shutdown-delayed report showing the U.S. trade deficit narrowed by much more than anticipated in the month of November.

The Commerce Department said the trade deficit narrowed to $49.3 billion in November from a revised $55.7 billion in October.

Economists had expected the deficit to narrow to $54.0 billion from the $55.5 billion originally reported for the previous month.

Treasuries pulled back further following the release of the results of the Treasury Department's auction of $27 billion worth of ten-year notes, which attracted below average demand.

The ten-year note auction drew a high yield of 2.689 percent and a bid-to-cover ratio of 2.35, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 2.55.

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

The Treasury is due to finish off this week's long-term securities auctions on Thursday with the sale of $19 billion worth of thirty-year bonds.

Trading on Thursday may be impacted by reaction to the Labor Department's report on initial jobless claims in the week ended February 2nd.

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