Treasuries Close Modestly Lower Following Choppy Trading Day

Treasuries showed a lack of direction over the course of the trading session on Tuesday before ending the day modestly lower.

After seeing early strength, bond prices saw some mid-day volatility and eventually closed in negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.4 basis points to 1.621 percent.

The choppy trading on the day came as traders looked ahead to the Federal Reserve’s monetary policy announcement on Wednesday.

Traders will be paying close attention to any changes to the Fed’s statement as well as any revisions to the central bank’s forecasts for the economy, inflation and interest rates.

Some traders are also hoping Fed Chair Jerome Powell will address the recent spike in treasury yields in his post-meeting press conference.

The lower close by treasuries came despite the release of a batch of disappointing U.S. economic data, including a Commerce Department report showing retail sales pulled back by much more than anticipated in the month of February.

The Commerce Department said retail sales plunged by 3.0 percent in February after soaring by an upwardly revised 7.6 percent in January.

Economists had expected retail sales to dip by 0.5 percent compared to the 5.3 percent spike originally reported for the previous month.

Excluding a drop in auto sales, retail sales still tumbled by 2.7 percent in February after skyrocketing by 8.3 percent in January. Ex-auto sales were expected to edge down by 0.1 percent.

The Federal Reserve also released a report showing an unexpected slump in U.S. industrial production in February, with steep drops in manufacturing and mining output more than offsetting a sharp increase in utilities output.

The Fed said industrial production tumbled by 2.2 percent in February after jumping by an upwardly revised 1.1 percent in January.

The pullback surprised economists, who had expected industrial production to climb by 0.6 percent compared to the 0.9 percent increase originally reported for the previous month.

The Fed said the severe winter weather in the south central region of the country in mid-February accounted for the bulk of the declines in output for the month.

Meanwhile, the volatility seen in early afternoon trading came after the Treasury Department revealed this month’s auction of $24 billion worth of twenty-year bonds attracted above average demand.

The twenty-year bond auction drew a high yield of 2.290 percent and a bid-to-cover ratio of 2.51, while the ten previous twenty-year bond auctions had an average bid-to-cover ratio of 2.38.

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 Fed’s monetary policy announcement is likely to be in the spotlight on Wednesday along with Fed Chair Powell’s post-meeting press conference.

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