Treasuries Close Nearly Unchanged After Seeing Early Strength

(RTTNews) - After moving moderately higher in early trading on Tuesday, treasuries gave back ground over the course of the session before closing roughly flat.

Bond prices pulled back near the unchanged line going into the close. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 2.342 percent.

The early strength among treasuries was partly due to a steep drop by the price of crude oil, which fell to four-year lows amid news that Saudi Arabia cut export prices to the U.S.

The sharp drop by the price of oil generated optimism that inflation will remain subdued, leading the Federal Reserve to hold off on raising interest rates.

Traders may also have been reacting to a report from the a Commerce Department report showing that the U.S. trade deficit widened by much more than expected in September amid a notable drop in the value of exports.

The report said the trade deficit widened to $43.0 billion in September from a revised $40.0 billion in August. Economists had expected the deficit to tick up to $40.2 billion.

While the value of imports was nearly unchanged at $238.6 billion, the value of exports fell 1.5 percent to $195.6 billion. The drop in exports came after they reached a record high in August.

Rob Carnell, chief international economist at ING, said, "It is possible that the U.S. dollar's strength has already begun to weigh on exports, but in our view, overseas economic weakness is a far more plausible explanation for the export dip."

The subsequent pullback by treasuries may have reflected uncertainty about the outcome of today's midterm elections, which could impact the political environment for the next two years.

Republicans are expected to increase their majority in the House, but it remains to be seen whether they will pick up the six seats needed to retake control of the Senate.

Traders were also likely looking ahead to the release of some key economic data in the coming days, including the closely watched monthly jobs report on Friday.

While the outcome of the elections is likely to be in focus on Wednesday, trading could also be impacted by the release of reports on private sector employment and service sector activity.