Plus   Neg

Treasuries Give Back Ground Following Recent Strength

Following the strong upward move seen over the past several sessions, treasuries gave back some ground during trading on Thursday.

Bond prices moved steadily lower as the day progressed before closing firmly in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 5 basis points to 1.516 percent.

The notable increase by the ten-year yield came after it fell to its lowest closing level in three years in the previous session.

The pullback by treasuries came on the heels of indications China is seeking to de-escalate the trade war with the U.S.

Chinese Ministry of Commerce spokesman Gao Feng indicated China does not currently intend to retaliate against President Donald Trump's latest threat to raise the rate of tariffs on Chinese imports.

"We firmly reject an escalation of the trade war, and are willing to negotiate and collaborate in order to solve this problem with calm attitude," Gao said, according to a CNBC translation.

Gao claimed China has plenty of countermeasures it could impose but will instead focus on removing Trump's new tariffs, which were announced after China said it plans to impose tariffs on $75 billion worth of U.S. goods.

"The most important thing at the moment is to create necessary conditions for both sides to continue negotiations," Gao told reporters during a weekly briefing.

Trump later told Fox News the U.S. and China are scheduled to hold talks later today at a "different level," although he did not clarify what that means.

Treasuries saw further downside in afternoon trading following the release of the results of the Treasury Department's auction of $32 billion worth of seven-year notes, which attracted well below average demand.

The seven-year note auction drew a high yield of 1.489 percent and a bid-to-cover ratio of 2.16, while the ten previous seven-year note auctions had an average bid-to-cover ratio of 2.46.

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

Earlier this week, the Treasury revealed its auctions of $40 billion worth of two-year notes and $41 billion worth of five-year notes both attracted above average demand.

On the U.S. economic front, the Labor Department released a report showing a modest increase in first-time claims for U.S. unemployment benefits in the week ended August 24th.

The report said initial jobless claims inched up to 215,000, an increase of 4,000 from the previous week's revised level of 211,000.

Economists had expected jobless claims to climb to 215,000 from the 209,000 originally reported for the previous week.

A separate report released by the Commerce Department showed the pace of growth in U.S. economic activity slowed by slightly more than initially estimated in the second quarter.

The Commerce Department said gross domestic product increased by 2.0 percent in the second quarter compared to the previously reported 2.1 percent growth. The downward revision came in line with economist estimates.

The downwardly revised GDP growth seen in the second quarter compares to the 3.1 percent jump in GDP reported for the first quarter.

Meanwhile, the National Association of Realtors also released a report showing a sharp pullback in pending home sales in the month of July.

NAR said its pending home sales index tumbled by 2.5 percent to 105.6 in July after surging up by 2.8 percent to 108.3 in June. The steep drop came as a surprise to economists, who had expected pending sales to come in unchanged.

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.

Trading on Friday may be impacted by reaction to reports on personal income and spending, Chicago-area business activity and consumer sentiment.

For comments and feedback contact: editorial@rttnews.com

Market Analysis

Follow RTT