Treasuries Show Notable Move To The Upside

(RTTNews) - After closing roughly flat for two consecutive sessions, treasuries showed a notable move to the upside during trading on Wednesday.

Bond prices moved higher early in the session and saw additional strength going into the close. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid by 6.2 basis points to 3.003 percent.

Treasuries saw further upside following the release of the minutes of the Federal Reserve's latest monetary policy meeting, which showed differences of opinion on most issues.

The minutes showed some uncertainty about the outlook for inflation, with some questioning whether the rate of inflation will be sustained at the Fed's 2 percent target.

Others noted a temporary period of inflation modestly above 2 percent would be consistent with the Fed's symmetric inflation objective.

"While the economy is generally viewed as being strong by just about everyone, there remains uncertainty about inflation and therefore the path of interest rates," said Joel L. Naroff, President and Chief Economist at Naroff Economic Advisors.

"The inflation hawks on the Fed seem to be outnumbered, at least right now, by the doves," he added. "That does not mean there will not be a rate hike in June."

The minutes said participants generally agreed with the assessment that continuing to raise interest rates gradually would likely be appropriate if the economy evolves about as expected.

"So, expect a hike in June," Naroff said. "And if inflation continues to accelerate as the economy grows more strongly, additional increases this year are likely."

On the U.S. economic front, the Commerce Department released a report showing a pullback in new home sales in the month of April.

The report said new home sales fell by 1.5 percent to an annual rate of 662,000 in April after jumping by 2 percent to a revised rate of 672,000 in March.

Economists had expected new home sales to drop to a rate of 679,000 from the 694,000 originally reported for the previous month.

Meanwhile, the Treasury Department revealed its auction of $36 billion worth of five-year notes attracted average demand.

The five-year note auction drew a high yield of 2.864 percent and a bid-to-cover ratio of 2.52, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.49.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Looking ahead, the Treasury is due to finish off this week's series of long-term securities auctions with the sale of $30 billion worth of seven-year notes on Thursday.

Trading on Thursday may also be impacted by reaction to reports on weekly jobless claims and existing home sales in April.