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Treasuries Give Back Ground Following Recent Strength

After moving sharply higher over the past several sessions, treasuries gave back some ground during the trading day on Tuesday.

Bond prices climbed off their worst levels going into the close but remained firmly negative. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed by 3.8 basis points to 2.119 percent.

With the increase on the day, the ten-year yield rebounded after ending the previous session at its lowest closing level since September of 2017.

The pullback by treasuries was partly due to profit taking following recent strength, with a rally on Wall Street also inspiring traders to shift their money out of the bond market and into stocks.

Treasuries saw further downside in morning trading in reaction to comments by Federal Reserve Chairman Jerome Powell, who said the central bank will act "as appropriate" to sustain the economic expansion.

Powell mentioned recent developments involving trade negotiations and other matters, acknowledging that the Fed does not know how or when these issues will be resolved.

The Fed Chief's comments come after St. Louis Fed President James Bullard suggested in a speech on Monday that an interest rate cut "may be warranted soon" due in part to escalating global trade tensions.

"The door is now open to a rate cut discussion at the June meeting in two weeks," said FTN Financial chief economist Chris Low. "We'll see if anyone other than Jay Bullard is willing to step up and cut."

Developments on the trade front also remained in focus, with a statement from China's Ministry of Commerce indicating the U.S.-China trade dispute can only be resolved through further talks.

While no new talks are scheduled, a spokesperson for China's Commerce Ministry said, "The Chinese side always believes that the differences and frictions between the two sides in the economic and trade field will ultimately need to be resolved through dialogue and consultation."

However, the spokesperson said future talks need to be based on "mutual respect, equality and mutual benefit" and called on the U.S. to "abandon its wrong practices and work in tandem with the Chinese side."

The release of the statement comes as both sides have been seeking to blame the other for the breakdown in trade talks last month.

In a statement, the U.S. Trade Representative and the U.S. Treasury Department accused China of pursuing a "blame game" while at the same time claiming China had "back-pedaled on important elements of what the parties had agreed to."

Reports on private sector employment and service sector activity may attract attention on Wednesday along with comments by several Fed officials.

The Fed is also due to release Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, which could shed additional light on the outlook for interest rates.

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