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Treasuries Show Strong Move Back To The Upside

Following the modest pullback seen in the previous session, treasuries showed a strong move back to the upside during trading on Tuesday.

Bond prices moved modestly higher in early trading and climbed more firmly into positive territory as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 5.5 basis points to 1.490 percent.

With the drop on the day, the ten-year yield more than offset the uptick seen in the previous session, ending the day at its lowest closing level in three years.

The strength among treasuries reflected their appeal as a safe haven amid renewed uncertainty about the escalating U.S.-China trade war.

President Donald Trump has claimed top Chinese officials called asking for the resumption of trade talks, but Chinese Foreign Ministry spokesman Geng Shuang continues to say he has not heard of any recent call.

Geng told reporters at a press briefing on Tuesday that China hopes the U.S. will return to rationality, stop its wrong practices and create conditions for the two sides to resume talks on the basis of mutual respect.

Meanwhile, traders largely shrugged off a report from the Conference Board showing only a slight deterioration in U.S. consumer confidence in the month of August.

The Conference Board said its consumer confidence index edged down to 135.1 in August after surging up to 135.8 in July. Economists had expected the index to show a much more substantial decrease to 130.0.

"Consumer confidence was relatively unchanged in August, following July's increase," said Lynn Franco, Senior Director of Economic Indicators at the Conference Board. "While other parts of the economy may show some weakening, consumers have remained confident and willing to spend."

She added, "However, if the recent escalation in trade and tariff tensions persists, it could potentially dampen consumers' optimism regarding the short-term economic outlook."

Treasuries saw continued strength following the release of the results of the Treasury Department's auction of $40 billion worth of two-year notes.

The two-year note auction drew a high yield of 1.516 percent and a bid-to-cover ratio of 2.60, while the ten previous two-year note auctions had an average bid-to-cover ratio of 2.56.

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

Trading on Wednesday may be impacted by reaction to the results of the Treasury's auction of $41 billion worth of five-year notes.

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