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Treasuries Extend Recent Move To The Downside

Treasuries moved notably lower during the trading day on Tuesday, extending the downward move seen over the two previous sessions.

Bond prices moved to the downside early in the session and remained firmly negative throughout the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, advanced by 8 basis points to 1.866 percent.

The ten-year yield closed higher for the third consecutive session, ending the day at its highest closing level in almost two months.

Optimism about a potential U.S.-China trade deal continued to weigh on treasuries, with President Donald Trump and Chinese President Xi Jinping widely expected to sign phase one of an agreement sometime this month.

As part of the deal, the U.S. is likely to scrap tariffs on about $156 billion worth of Chinese imports currently set to take effect on December 15th.

A report from the Financial Times said the U.S. is also considering China's request to lift the 15 percent tariff on about $125 billion worth of Chinese goods that went into effect on September 1st.

A person familiar with Beijing's negotiating position told Reuters that China is continuing to press Washington to "remove all tariffs as soon as possible."

Treasuries saw some further downside after the Institute for Supply Management released a report showing growth in U.S. service sector activity reaccelerated by more than anticipated in the month of October.

The ISM said its non-manufacturing index climbed to 54.7 in October from 52.6 in September, with a reading above 50 indicating growth in the service sector. Economists had expected the index to inch up to 53.2.

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

The three-year note auction drew a high yield of 1.630 percent and a bid-to-cover ratio of 2.60, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.47.

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

Looking ahead, the Treasury is due to announce the results of its auction of $27 billion worth of ten-year notes on Wednesday.

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