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Treasuries Climb Off Worst Levels But Close Modestly Lower

Treasuries closed modestly lower on Wednesday, extending the downward trend seen over the past several sessions.

Bond prices regained ground after an initial drop but still ended the day in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.2 basis points to 0.670 percent.

With the uptick, the ten-year yield closed higher for the fourth straight session, ending the day at its highest closing level in over a month.

The modest weakness among treasuries came after the Labor Department released a report showing the biggest increase in core consumer prices in nearly thirty years.

The Labor Department said its consumer price index climbed by 0.6 percent in July, matching the increase seen in June. Economist had expected consumer prices to rise by 0.3 percent.

Excluding food and energy prices, core consumer prices still advanced by 0.6 percent in July after inching up by 0.2 percent in the previous month. Core prices were expected to edge up by another 0.2 percent.

Core consumer prices showed their biggest increase since January of 1991, partly reflecting another jump in prices for motor vehicle insurance.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said the increase in consumer prices "should end any speculation that the pandemic-related slump in demand will quickly push the economy into a deflationary spiral."

"But this is not a sign that the U.S. is instead about to experience a bout of much high inflation because of supply restrictions," Ashworth said. "It mainly reflects a recovery in the prices of goods and services that were most affected during the early stages of the pandemic."

Meanwhile, the Treasury Department revealed that its sale of $38 billion worth of ten-year notes attracted modestly below average demand.

The ten-year note auction drew a high yield of 0.677 percent and a bid-to-cover ratio of 2.41, while the ten previous ten-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 this month's auction of $26 billion worth of thirty-year bonds on Thursday.

Traders are also likely to keep a close eye on the Labor Department's weekly jobless claims report, which is expected to show a relatively modest drop in jobless claims.

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