Treasuries Pull Back Sharply Amid Muted Response To Iran Attack

After moving modestly higher in early trading on Wednesday, treasuries pulled back sharply over the course of the session.

Bond prices came under pressure in late afternoon trading and saw further downside as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 4.7 basis points to 1.874 percent.

Treasuries initially benefited from their appeal as a safe haven after Iran’s overnight missile strikes on Iraqi military bases housing U.S. troops.

However, selling pressure emerged after President Donald Trump revealed he would respond to the attack with new sanctions on Iran rather than the harsh military response he previously threatened.

The new sanctions will likely have a negative impact on the already struggling Iranian economy but appear far short of Trump’s earlier threat to “hit them harder than they have ever been hit before!”

Trump’s decision to forego a military response to the Iranian attack seems to stem from the fact that the Iranian missile strikes did not result in the loss of American or Iraqi lives.

The president also noted “Iran appears to be standing down” following the attack, which he said is a “good thing for all parties concerned and a very good thing for the world.”

The attack by Iran was retaliation for the U.S. killing of Quds Force Commander Qasem Soleimani, who Trump claims was “personally responsible for some of the absolutely worst atrocities.”

Trump concluded his remarks by saying Iran deserves a future of prosperity at home and harmony with the world and declared the U.S. is “ready to embrace peace with all who seek it.”

Earlier in the day, payroll processor ADP released a report showing much stronger than expected private sector job growth in the month of December.

ADP said private sector employment surged up by 202,000 jobs in December after climbing by a substantially upwardly revised 124,000 jobs in November.

Economists had expected employment to increase by about 160,000 jobs compared to the addition of 67,000 jobs originally reported for the previous month.

Meanwhile, traders largely shrugged off the results of the Treasury Department’s auction of $24 billion worth of ten-year notes, which attracted slightly above average demand.

The ten-year note auction drew a high yield of 1.869 percent and a bid-to-cover ratio of 2.45, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 2.42.

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 is scheduled to announce the results of its auction of $16 billion worth of thirty-year bonds on Thursday.

A report on weekly jobless claims may also attract some attention on Thursday, although trading activity is likely to be somewhat subdued ahead of the release of the Labor Department’s more closely watched monthly jobs report on Friday.

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