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Treasuries Close Little Changed After Recovering From Early Weakness

Treasuries extended yesterday's sharp pullback in early trading on Wednesday but regained ground over the course of the session.

Bond prices climbed well off their worst levels of the session, ending the day little changed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by less than a basis point to 2.748 percent after reaching a high of 2.849 percent.

The early weakness among treasuries came as traders reacted to some upbeat U.S. economic data, including a report from the Institute for Supply Management showing an unexpected acceleration in the pace of growth in U.S. services sector activity in the month of July.

The ISM said its services PMI rose to 56.7 in July from 55.3 in June, with a reading above 50 indicating growth in the sector. The uptick came as a surprise to economists, who had expected the index to dip to 53.5.

The unexpected increase by the services PMI came after the index edged down to its lowest reading since May 2020 in the previous month.

"Looking ahead, services activity will be fairly muted as hot inflation, tighter financial conditions, supply chain stress, downbeat sentiment and softening spending restrain growth," said Oren Klachkin, Lead US Economist at Oxford Economics.

"The recovery's best days are clearly in the rear-view mirror, but this doesn't mean an economic downturn has begun," he added. "We think fundamentals are strong enough to prevent a recession this year, though the window to achieving a softish landing is narrowing."

A separate report from the Commerce Department showed a significant increase in new orders for U.S. manufactured goods in the month of June.

The report showed factory orders shot up by 2.0 percent in June after surging by an upwardly revised 1.8 percent in May.

Economists had expected factory orders to advance by 1.1 percent compared to the 1.6 percent jump originally reported for the previous month.

Selling pressure waned over the course of the session, however, reflecting lingering recession concerns and worries about rising tensions between the U.S. and China after House Speaker Nancy Pelosi's visit to Taiwan.

Reports on weekly jobless claims and the U.S. trade deficit are likely to attract attention on Thursday, although trading activity may be somewhat subdued ahead of the release of the more closely watched monthly jobs report on Friday.

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