Treasuries Extend Yesterday's Rebound Amid Ongoing Economic Worries

Treasuries showed a significant advance during trading on Wednesday, extending the notable rebound seen in the previous session.

After an early rally, bond prices gave back some ground but remained firmly positive. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 8.4 basis points to 3.709 percent.

With the extended rebound, treasuries continued to regain ground following recent weakness, which reflected concerns about the outlook for interest rates.

Treasuries may have benefitted from their appeal as a safe haven amid ongoing worries about a potential recession.

Adding to the economic worries, the Institute for Supply Management released a report showing U.S. manufacturing activity contracted at a slightly faster rate in the month of December.

The ISM said its manufacturing PMI edged down to 48.4 in December from 49.0 in November, with a reading below 50 indicating a contraction. Economists had expected the index to slip to 48.5.

Manufacturing activity contracted for the second consecutive month after expanding for 29 straight months, with the manufacturing PMI falling to its lowest level since hitting 43.5 in May 2020.

Paul Ashworth, Chief North America Economist at Capital Economics, called the decrease by the manufacturing PMI “another sign that the economy was losing momentum at the tail-end of last year.”

“Nearly all the survey-based evidence points to a complete stagnation or even contraction in activity,” Ashworth added.

Meanwhile, treasuries did not show much reaction to the release of the Federal Reserve’s December monetary policy meeting, which did little to impact expectations the central bank is likely to continuing raising interest rates.

The minutes reiterated that officials continue to anticipate that ongoing rate increases would be appropriate to achieve the Fed’s dual objectives of maximum employment and price stability.

Trading on Thursday may be impacted by reaction to reports on weekly jobless claims, private sector employment and the U.S. trade deficit.

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