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Treasuries Extend Pullback On Optimism About Avoiding Shutdown

Extending the pullback seen in the previous session, treasuries moved moderately lower over the course of the trading day on Tuesday.

Bond prices fluctuated early in the day but spent most of the session firmly in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.3 basis points to 2.684 percent.

With the increase on the day, the ten-year yield climbed further off the one-month closing low that it set last Friday.

The continued weakness among treasuries came amid optimism lawmakers will manage to avoid another government shutdown after negotiators reached a tentative agreement on border security.

Senate Appropriations Committee Chairman Richard Shelby, R-Ala., a lead Republican negotiator, said the two sides have reached an "agreement in principle."

The agreement reportedly includes $1.4 billion for physical barriers on the border, well short of the $5.7 billion President Donald Trump has demanded for construction of a border wall.

Democrats have also purportedly agreed to drop their demand to reduce the number of illegal immigrants who can be detained by Immigration and Customs Enforcement.

Shelby said the White House was consulted throughout the negotiations, although Trump later expressed displeasure with the terms of the agreement.

Trump told reporters during a Cabinet meeting at the White House on Tuesday that he is "not happy" with the deal struck by lawmakers but stopped short of saying he would reject the plan.

The president suggested he was "adding things" to the compromise agreement and claimed he would still build a "beautiful, big, strong wall" on the U.S. border with Mexico.

The comments from Trump come as lawmakers face a deadline of midnight on Friday to pass a spending bill and avoid another government shutdown.

Trump said he does not think there will be another shutdown but added, "If you did have it, it's the Democrats' fault."

Optimism about the next round of U.S.-China trade talks taking place this week also reduced the appeal of safe havens like bonds.

A report from Bloomberg said some U.S. officials see the most likely scenario at this week's talks is for Trump to defer his deadline for raising tariffs.

Trump told reporters he could let the deadline "slide for a little while" if the U.S. and China are "close to a deal where we think we can make a real deal, and it's going to get done."

Following two quiet days on the U.S. economic front, trading on Wednesday may be impacted by reaction to a closely watched report on consumer price inflation.

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