Treasuries Recover From Early Weakness To Close Nearly Unchanged

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After coming under pressure early in the session, treasuries regained ground over the course of the trading day on Wednesday.

Bond prices climbed well off their worst levels, ending the day just below the unchanged line. 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 0.687 percent.

Treasuries showed a notable recovery following the release of the results of the Treasury Department’s auction of $51 billion worth of five-year notes, which attracted above average demand.

The five-year note auction drew a high yield of 0.298 percent and a bid-to-cover ratio of 2.71, while the ten previous five-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.

The release of the results came a day after the Treasury revealed that its auction of $50 billion worth of two-year notes also attract above average demand.

The early weakness among treasuries came following the release of a report from the from the Commerce Department showing durable goods orders spiked by much more than expected in the month of July.

The Commerce Department said durable goods orders skyrocketed by 11.2 percent in July after surging up by a revised 7.7 percent in June.

Economists had expected durable goods orders to increase by 4.3 percent compared to the 7.6 percent jump that had been reported for the previous month.

The bigger than expected leap in durable goods orders was primarily due to a sharp increase in orders for transportation equipment, which soared by 35.6 percent.

Excluding the substantial increase in orders for transportation equipment, durable goods orders rose by a much more modest 2.4 percent in July after climbing by 4.0 percent in June. The increase still exceeded estimates for 2.0 percent growth.

The report also said orders for non-defense capital goods excluding aircraft, a reading on business spending, climbed by 1.9 percent in July after surging up by 4.3 percent in June.

“With core orders now back close to pre-pandemic levels, the recovery in business equipment investment looks pretty V-shaped to us,” said Michael Pearce, Senior U.S. Economist at Capital Economics.

Looking ahead, trading on Thursday is likely to be driven by reaction to Federal Reserve Chair Jerome Powell’s live-streamed speech at the Jackson Hole economic symposium.

Analysts have suggested Powell will signal an increased tolerance for higher inflation, with some predicting he will call for a shift to “average inflation” targeting rather than the long-standing 2 percent target.

Powell’s speech may overshadow reports on weekly jobless claims, second quarter GDP, and pending home sales as well as the results of the Treasury Department’s auction of $47 billion worth of seven-year notes.

The material has been provided by InstaForex Company – www.instaforex.com

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