Treasuries Show Substantial Rebound After Seeing Early Weakness

(RTTNews) - Treasuries extended their recent pullback in early trading on Wednesday but showed a substantial rebound over the course of the session.

Bond prices climbed well off their early lows and firmly into positive territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.9 basis points to 3.907 percent after reaching a high of 4.008 percent.

The early weakness among treasuries partly reflected renewed uncertainty about the outlook for interest rates ahead of the release of the minutes of the Federal Reserve's latest monetary policy meeting later in the day.

Selling pressure waned over the course of the morning, however, with the ten-year climbing above 4.0 percent inspiring some traders to get back into the markets.

Bond prices subsequently turned higher as the day progressed and saw further upside following the release of the Fed minutes.

With the minutes reiterating officials widely expect to begin lowering interest rates in 2024, traders seemed to shrug off the fact that they also highlighted an "unusually elevated degree of uncertainty" about the outlook for rates and the economy.

Projections provided by Fed officials at the December 12-13 meeting suggested three quarter point rate cuts by the central bank are likely by the end of 2024.

The forecasts were backed up by the minutes, which said baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024.

However, the minutes said participants also noted an unusually elevated degree of uncertainty and that it was possible further rate increases could be appropriate.

Several participants also observed that circumstances might warrant keeping rates at current levels for longer than they currently anticipated, the minutes said.

The Fed's next monetary policy meeting is scheduled for January 25-26, with the central bank widely expected to leave interest rates unchanged.

Meanwhile, CME Group's FedWatch Tool currently indicates there is a 66.5 percent chance the Fed could lower rates by a quarter point at its following meeting in March.

On the U.S. economic front, a report released by the Institute for Supply Management showed U.S. manufacturing activity contracted at a slightly slower rate in the month of December.

The ISM said its manufacturing PMI rose to 47.4 in December from 46.7 in November, but a reading below 50 still indicates contraction. Economists had expected the index to inch up to 47.1.

The Labor Department also released a report showing job openings in the U.S. edged down from an upwardly revised level in the month of November.

Reports on private sector employment and weekly jobless claims are likely to attract attention on Thursday, although trading activity may be somewhat subdued ahead of the release of the Labor Department's more closely watched monthly jobs report on Friday.