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Treasuries Show Strong Move Back To The Upside

Following the pullback seen in the previous session, treasuries showed a strong move back to the upside over the course of the trading day on Thursday.

Bond prices fluctuated early in the session but climbed firmly into positive territory as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 4.4 basis points to 2.005 percent.

The rebound by treasuries came as traders looked to the relative safety of bonds amid uncertainty ahead of the highly anticipated G20 meeting between President Donald Trump and Chinese President Xi Jinping.

Trump and Xi are not expected to come out of the meeting with a finalized trade deal, but traders will be looking for signs of progress toward kick-starting the stalled negotiations between the two economic superpowers.

A report from the Wall Street Journal said Xi plans to present Trump with a set of terms the U.S. should meet before Beijing is ready to settle the trade dispute.

Lifting the ban on the sale of U.S. technology to Chinese telecom giant Huawei, removing all tariffs and dropping efforts to get China to buy more U.S. exports are reportedly among the preconditions.

However, Trump is not likely to appreciate Xi dictating terms and has repeatedly threatened to escalate the trade war with new tariffs on the remaining Chinese imports.

Treasuries saw further upside in afternoon trading even though the Treasury Department's auction of $32 billion worth of seven-year notes attracted modestly below average demand.

The seven-year note auction drew a high yield of 1.889 percent and a bid-to-cover ratio of 2.44, while the ten previous seven-year note auctions had an average bid-to-cover ratio of 2.50.

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

Bond traders also shrugged off a report from the National Association of Realtors showing pending home sales rebounded by slightly more than anticipated in the month of May.

NAR said its pending home sales index surged up by 1.1 percent to 105.4 in May after tumbling by 1.5 percent to 104.3 in April. Economists had expected the index to increase by 1.0 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

The Labor Department released a separate report showing first-time claims for unemployment benefits increased by more than expected in the week ended June 22nd.

The report said initial jobless claims rose to 227,000, an increase of 10,000 from the previous week's revised level of 217,000. Economists had expected jobless claims to inch up to 220,000.

Reaction to news out of the G20 summit in Japan is likely to drive trading on Friday, potentially overshadowing reports on personal income and spending, Chicago-area business activity, and consumer sentiment.

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