Treasuries Close Roughly Flat After Volatile Session

Treasuries saw wild fluctuations over the course of the trading session on Wednesday before ending the day roughly flat.

After recovering from initial weakness, bond prices spiked in early afternoon trading but pulled back going into the close. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 1.339 percent.

The early afternoon jump by treasuries came after the Treasury Department revealed this month's auction of $41 billion worth of ten-year notes attracted strong demand.

The ten-year note auction drew a high yield of 1.340 percent and a bid-to-cover ratio of 2.65, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 2.41.

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

Meanwhile, traders were also digesting the Labor Department's highly anticipated consumer price inflation report, which showed consumer prices increased in line with economist estimates.

The Labor Department said its consumer price index climbed by 0.5 percent in July after jumping by 0.9 percent in June.

Economists had expected consumer prices to rise by 0.5 percent following the advance in the previous month, which reflected the biggest increase since June of 2008.

Compared to the same month a year ago, consumer prices in July were up by 5.4 percent, unchanged from the annual rate of growth seen in June. The pace of growth was expected to dip to 5.3 percent.

Excluding higher food and energy prices, core consumer prices rose by 0.3 percent in July after surging by 0.9 percent in June. Economists had expected core prices to increase by 0.4 percent.

The annual rate of growth in core prices slowed to 4.3 percent in July from 4.5 percent in June, matching economist estimates.

"We believe June marked the peak in the in the annual rate of inflation as the strong base effects are subsiding and wholesale price increases for used cars and trucks have moderated greatly," said Kathy Bostjancic, Chief U.S. Financial Economist at Oxford Economics.

She added, "That said, price increases stemming from the reopening of the economy and ongoing supply chain bottlenecks will keep the rate of inflation elevated and sticky as supply/demand imbalances are only gradually resolved."

Bostjancic shares the Federal Reserve's view that "this isn't the start of an upward wage-price spiral" but still expects inflation to remain persistently above 2 percent through 2022.

On Thursday, the Labor Department is scheduled to release a separate report on producer price inflation in the month of July.

Trading on Thursday may also be impacted by reaction to a report on weekly jobless claims as well as the results of the Treasury's auction of $27 billion worth of thirty-year bonds.

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