Treasuries Close Roughly Flat After Seeing Early Strength

(RTTNews) - After a failing to sustain an early move to the upside, treasuries gave back ground over the course of the trading session on Tuesday.

Bond prices pulled back well off their early highs, ending the day roughly flat. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day unchanged at 4.875 percent after hitting a low of 4.803 percent.

The roughly flat close by treasuries came as traders looked ahead to the Federal Reserve's highly anticipated monetary policy announcement on Wednesday.

While the Fed is widely expected to leave interest rates unchanged, traders will pay close attention to the accompanying statement for clues about the outlook for rates.

CME Group's FedWatch Tool is currently indicating a 97.1 percent chance the Fed will leave rates unchanged on Wednesday and a 68.9 percent chance rates will remain unchanged in December.

"The Fed is still wary of letting their guard down too early after missing their inflation target badly in the last few years," said Bill Adams, Chief Economist for Comerica Bank.

He added, "They are likely to signal tomorrow that they are prepared to raise interest rates again if inflation strays from its current downward trajectory."

The early pullback by treasuries came following the release of a Labor Department report showing employment costs jumped by slightly more than expected in the third quarter.

The Labor Department said its employment cost index shot up by 1.1 percent in the third quarter compared to economist estimates for a 1.0 percent advance.

However, the report also showed the annual rate of growth by the employment cost index slowed to 4.3 percent in the third quarter from 4.5 percent in the second quarter.

The Fed's announcement will be in the spotlight on Wednesday, likely overshadowing reports on manufacturing activity, construction spending and job openings.