Treasuries Move To The Upside Following Powell Testimony

Treasuries showed a lack of direction in morning trading on Tuesday but moved to the upside over the course of the afternoon.

Bond prices climbed more firmly into positive territory after bouncing back and forth across the unchanged line. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.4 basis points to 1.746 percent.

With the decrease on the day, the ten-year yield gave back ground after ending Monday's trading at its highest closing level since January of 2020.

The higher close by treasuries came after Federal Reserve Chair Jerome Powell testified before a Senate Banking Committee hearing on his nomination for another term.

In prepared remarks, Powell highlighted elevated inflation as a result of supply chain issues and said the Fed would use all of its tools to prevent higher inflation from becoming entrenched.

"We can begin to see that the post-pandemic economy is likely to be different in some respects," Powell said. "The pursuit of our goals will need to take these differences into account."

He added, "To that end, monetary policy must take a broad and forward-looking view, keeping pace with an ever-evolving economy."

Powell later told the committee the Fed would be willing to raise interest rates more than currently expected to combat inflation.

While Powell's remarks have been described as "hawkish," they are not seen as indicating the Fed will be more aggressive than already suggested by the minutes of the central bank's latest meeting.

Treasuries also seemed to benefit from the results of the Treasury Department's auction of $52 billion worth of three-year notes, which attracted slightly above average demand.

The three-year note auction drew a high yield of 1.237 percent and a bid-to-cover ratio of 2.47, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.44.

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

A report on consumer price inflation is likely to attract attention on Wednesday along with the Fed's Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts.

Bond trading may also be impacted by reaction to the results of the Treasury Department's auction of $36 billion worth of ten-year notes.

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