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Treasuries Rebound Strongly On BoE Bond Market Intervention

After moving sharply lower over the past few sessions, treasuries showed a substantial rebound during trading on Wednesday.

Bond prices moved notably higher early in the day and saw further upside as the session progressed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, plunged by 25.9 basis points to 3.705 percent.

With the steep drop on the day, the ten-year yield gave back ground after ending Tuesday's trading at its highest closing level in over twelve years.

The rally by treasuries came after the Bank of England announced plans to begin temporarily purchasing long-dated U.K. government bonds to address dysfunction in the gilt market.

The BoE said the purchases would be carried out on "whatever scale is necessary" to restore orderly market conditions.

In addition, the BoE postponed the selling of bonds held under the quantitative easing program to October 31. The sale was initially due to commence next week.

The moves come as U.K. bond yields have spiked after the government revealed its mini-budget including significant unfunded tax cuts.

Treasuries also benefited from a significant pullback by the U.S. dollar, with the U.S. dollar index tumbling by 1.3 percent. The greenback had recently reached new 20-year highs.

Bond prices remained firmly positive after the Treasury Department revealed this month's sale of $36 billion worth of seven-year notes attracted above average demand.

The seven-year note auction drew a high yield of 3.898 percent and a bid-to-cover ratio of 2.57, while the ten previous seven-year note auctions had an average bid-to-cover ratio of 2.46.

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

Earlier this week, the Treasury revealed this month's auctions of $43 billion worth of two-year notes and $44 billion worth of five-year notes both attracted below average demand.

A report on weekly jobless claims may attract some attention on Thursday along with the final reading on U.S. GDP in the second quarter.

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