Plus   Neg

Treasuries Show Slight Move Back To The Downside

After moving notably higher over the course of the previous session, treasuries gave back some ground during trading on Wednesday.

Bond prices climbed off their worst levels of the day but still ended the session slightly lower. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by less than a basis point to 2.611 percent.

The modest pullback by treasuries came after a Commerce Department report showed an unexpected increase in durable goods orders in the month of January.

The report said durable goods orders climbed by 0.4 percent in January after spiking by an upwardly revised 1.3 percent in December. Economists had expected durable goods orders to drop by 0.5 percent.

However, the increase in durable goods orders was largely due to a continued surge in orders for transportation equipment, which could nosedive in the comings months as aerospace giant Boeing (BA) deals with the second crash of one of its 737 Max 8 jets in less than six months.

Excluding the jump in orders for transportation equipment, durable goods orders edged down by 0.1 percent in January after rising by an upwardly revised 0.3 percent in December.

Ex-transportation orders had been expected to inch up by 0.1 percent, matching the uptick originally reported for the previous month.

Meanwhile, the Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched indicator of business spending, climbed by 0.8 percent in January after slumping by 0.9 percent in December.

A separate report from the Labor Department showed a modest increase in producer prices in the month of February.

The Labor Department said its producer price index for final demand inched up by 0.1 percent in February after edging down by 0.1 percent in January. Economists had expected prices to rise by 0.2 percent.

Excluding food and energy prices, core producer prices also ticked up by 0.1 percent in February after climbing by 0.3 percent in the previous months. Core prices were also expected to increase by 0.2 percent.

The report also said the annual rate of consume price growth slowed to 1.5 percent in February from 1.6 percent in November, while the annual rate of core consumer price growth edged down to 2.1 percent from 2.2 percent.

"The rebound in underlying capital goods orders in January stands out as a positive amid the recent flood of downbeat activity data, but it is still consistent with a gradual slowdown in business equipment investment growth in the first quarter," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "And with the February producer price figures showing that pipeline inflationary pressures remain subdued, there is still a strong case for the Fed to remain patient."

Meanwhile, traders largely shrugged off the results of the Treasury Department's auction of $16 billion worth of thirty-year bonds, which attracted slightly below average demand.

The thirty-year bond auction drew a high yield of 3.014 percent and a bid-to-cover ratio of 2.25, while the ten previous seven-year note auctions had an average bid-to-cover ratio of 2.30.

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

Today's thirty-year bond auction came after the Treasury sold $38 billion worth of three-year notes on Monday and $24 billion worth of ten-year notes on Tuesday.

Another batch of U.S. economic data may impact trading on Thursday, with reports on weekly jobless claims, import and export prices, and new home sales likely to attract attention.

For comments and feedback contact: editorial@rttnews.com

Market Analysis

Follow RTT