Treasury Yields Extend Pullback Off Last Week’s Highs

Treasuries moved higher over the course of the trading day on Wednesday, extending the upward move seen over the two previous sessions.

Bond prices showed a lack of direction in morning trading but climbed firmly into positive territory in the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell 2.4 basis points to 1.614 percent.

With the continued drop on the day, the ten-year yield has tumbled by 14 basis points since reaching a fourteen-month intraday high last Thursday.

The continued strength among treasuries was partly attributed to comments from Federal Reserve Chair Jerome Powell, who told lawmakers he is not worried by the recent jump in yields.

“It seems that rates have responded to news about vaccination and ultimately about growth. So higher growth, higher inflation, lower cases about Covid,” Powell told the Senate Banking Committee. “In effect there’s been an underlying sense of an improved economic outlook.”

The advance by treasuries seen in afternoon trading came even though the Treasury Department revealed this month’s auction of $61 billion worth of five-year notes attracted slightly below average demand.

The five-year note auction drew a high yield of 0.850 percent and a bid-to-cover ratio of 2.36, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.41.

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 Treasury revealed on Tuesday that this month’s auction of $60 billion worth of two-year notes attracted average demand.

On the U.S. economic front, the Commerce Department released a report showing new orders for U.S. manufactured durable goods unexpectedly decreased in the month of February.

The Commerce Department said durable goods orders slumped by 1.1 percent in February after spiking by an upwardly revised 3.5 percent in January.

The pullback came as a surprise to economists, who had expected durable goods orders to climb by 0.8 percent compared to the 3.4 percent jump that had been reported for the previous month.

Excluding a steep drop in orders for transportation equipment, durable goods orders still fell by 0.9 percent in February after surging up by 1.6 percent in January. Economists had expected a 0.6 percent increase.

The data follows the recent release of disappointing reports on retail sales, industrial production and home sales, although the weakness is largely seen as the result of severe winter storms.

Looking ahead, the Treasury is due to announce the result of its auction of $62 billion worth of seven-year notes on Thursday.

Trading on Thursday may also be impacted by reaction to the Labor Department’s report on initial jobless claims in the week ended March 20th.

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