Treasuries Close Roughly Flat Following Lackluster Session

Treasuries showed a lack of direction over the course of the trading session on Thursday before ending the day roughly flat.

Bond prices spent the day bouncing back and forth across the unchanged line. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, crept up by less than a basis point to 1.269 percent.

The choppy trading on the day came despite the release of some disappointing U.S. economic data, including a report from the Commerce Department showing economic growth fell well short of estimates in the second quarter.

The weaker than expected data may have added to optimism the Federal Reserve will not be in a hurry to begin scaling back its asset purchases.

On Wednesday, the Fed noted progress has been made towards the central bank’s maximum employment and price stability goals, although Fed Chair Jerome Powell noted there is still “some ground to cover on the labor market side.”

The Commerce Department said real GDP surged up by 6.5 percent in the second quarter following a 6.3 percent jump in the first quarter. Economists had expected GDP to spike by 8.5 percent.

The GDP growth in the second quarter reflected increases in consumer spending, non-residential fixed investment, exports, and state and local government spending.

However, decreases in private inventory investment, residential fixed investment, and federal government spending limited the upside along with an increase in imports, which are a subtraction in the calculation of GDP.

“The good news is that the economy has now surpassed its pre-pandemic level,” said Paul Ashworth,
Chief U.S. Economist at Capital Economics.

He added, “But with the impact from the fiscal stimulus waning, surging prices weakening purchasing power, the delta variant running amok in the south and the saving rate lower than we thought, we expect GDP growth to slow to 3.5% annualized in the second half of this year.”

Meanwhile, the Labor Department released a report showing a modest pullback in initial jobless claims in the week ended July 24th.

The report said initial jobless claims dipped to 400,000, a decrease of 24,000 from the previous week’s revised level of 424,000.

Economists had expected jobless claims to drop to 380,000 from the 419,000 originally reported for the previous week.

The National Association of Realtors also released a report showing an unexpected pullback in pending home sales in the month of June.

NAR said its pending home sales index tumbled by 1.9 percent to 112.8 in June after soaring by 8.3 percent to a revised 115.0 in May.

The pullback surprised economists, who had expected pending home sales to edge up by 0.3 percent compared to the 8.0 percent spike originally reported for the previous month.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

Bond traders largely shrugged off the results of the Treasury Department’s auction of $62 billion worth of seven-year notes, which attracted below average demand.

The seven-year note auction drew a high yield of 1.050 percent and a bid-to-cover ratio of 2.23, while the ten previous seven-year note auctions had an average bid-to-cover ratio of 2.30.

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

Trading on Friday may be impacted by another batch of U.S. economic data, including reports on personal income and spending, Chicago-area business activity and consumer sentiment.

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