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Treasuries Close Roughly Flat After Recovering From Early Pullback

Treasuries moved to the downside in early trading on Tuesday but bounced back near the unchanged line over the course of the session.

Bond prices spent the afternoon bouncing back and forth across the unchanged line before closing roughly flat. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by less than a basis point to 1.739 percent.

The initial pullback by treasuries came as traders cashed in on the substantial strength seen in the bond markets over the past few sessions.

News the People's Bank of China set the midpoint for the Chinese currency at a stronger than expected level also reduced the appeal of safe havens such as bonds.

A recent drop in the value of the Chinese yuan further fueled speculation Beijing is devaluing its currency to counter President Donald Trump's latest tariff threat.

After refusing to do so several times in the past, Treasury Secretary Steven Mnuchin officially declared China a currency manipulator on Monday.

The Treasury Department said Mnuchin will subsequently engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China's latest actions.

Selling pressure was relatively subdued, however, leading to a subsequent recover by treasuries as traders remain uneasy about the impact of the ongoing U.S.-China trade war.

Traders largely shrugged off the results of the Treasury Department's auction of $38 billion worth of three-year notes, which attracted below average demand.

The three-year note auction drew a high yield of 1.562 percent and a bid-to-cover ratio of 2.41, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.52.

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

Amid another quiet day on the U.S. economic front, trading on Wednesday may be impacted by reaction to the results of the Treasury's auction of $27 billion worth of ten-year notes.

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