Treasuries showed a lack of direction throughout much of the trading day on Tuesday before eventually closing modestly higher.
Bond prices spent most of the session lingering near the unchanged line but moved to the upside going into the close. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 2.4 basis points to 4.264 percent.
The late-day strength among treasuries came after the Treasury Department revealed this month’s auction of $35 billion worth of ten-year notes attracted above average demand.
The ten-year note auction drew a high yield of 4.289 and a bid-to-cover ratio of 2.52, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 2.43.
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 choppy trading seen for most of the day came as traders looked ahead to the release of the Labor Department’s highly anticipated report on consumer price inflation on Wednesday.
Economists currently expect the annual rate of consumer price growth to accelerate to 3.6 percent in August from 3.2 percent in July, while the annual rate of core consumer price growth is expected to slow to 4.4 percent from 4.7 percent.
The inflation data could have a significant impact on the outlook for interest rates ahead of the Federal Reserve’s monetary policy meeting next week.
Ahead of the data, CME Group’s FedWatch Tool is currently indicating a 93.0 percent chance the Federal Reserve will leave interest rates unchanged next week.
The outlook for November is a little more uncertain, however, with the FedWatch Tool indicating a 56.4 percent chance rates will remain unchanged and a 40.9 percent chance of another quarter point rate hike.
Trading on Wednesday is likely to be driven by reaction to the report on consumer price inflation and the impact on the outlook for interest rates.
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