Treasuries Close Modestly Higher After Seeing Early Weakness

Treasuries moved modestly higher over the course of the trading session on Tuesday, recovering from an early move to the downside.

Bond prices rebounded after seeing early weakness and spent rest of the day hovering slightly above the unchanged line. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by 1.2 basis points to 1.472 percent after reaching a high of 1.509 percent.

The uptick by treasuries came as Federal Reserve Chair Jerome Powell continued to downplay the risks of inflation during testimony before the House Select Subcommittee on the Coronavirus Crisis.

Powell acknowledged inflation has increased notably in recent months but reiterated the view that the jump is due to "transitory" factors and predicted inflation would drop back toward the Fed's longer-run goal of 2 percent price growth.

The Fed chief also warned the coronavirus pandemic continues to pose risks to the economic outlook, pointing to the slowing pace of vaccinations and new strains of the virus.

Powell stressed that the Fed will do "everything we can to support the economy for as long as it takes to complete the recovery."

Treasuries remained modestly higher after the Treasury Department revealed this month's sale of $60 billion worth of two-year notes attracted average demand.

The two-year note auction drew a high yield of 0.249 percent and a bid-to-cover ratio of 2.54, while the ten previous two-year note auctions had an average bid-to-cover ratio of 2.55.

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

On the U.S. economic front, the National Association of Realtors released a report showing existing home sales extended a recent pullback in May but fell by less than economists had expected.

NAR said existing home sales slid by 0.9 percent to an annual rate of 5.80 million in May after tumbling by 2.7 percent to a rate of 5.85 million in April. Economists had expected existing home sales to slump by 2.2 percent to a rate of 5.72 million.

Existing home sales have plummeted by 12.9 percent since January but are still up by 44.6 percent compared to May of 2020.

Looking ahead, the Treasury is due to announce the results of this month's auction of $61 billion worth of five-year notes on Wednesday.

Traders are also likely to keep an eye on the Commerce Department's report on new home sales in the month of May.

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