After ending the previous session roughly flat, treasuries showed a notable move to the upside over the course of the trading day on Tuesday.
Bond prices moved steadily higher as the day progressed, closing firmly in positive territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 6.7 basis points to 3.758 percent.
The strength among treasuries came as traders continued to express optimism about the Federal Reserve slowing the pace of its interest rate hikes despite some hawkish comments from Fed officials.
The Fed’s next monetary policy meeting is scheduled for December 13-14, with CME Group’s FedWatch Tool currently indicating a 75.8 percent chance of a 50 basis point rate hike and a 24.2 percent chance of another 75 basis point rate hike.
Treasuries saw further upside in afternoon trading even as the Treasury Department revealed this month’s auction of $35 billion worth of seven-year notes attracted below average demand.
The seven-year note auction drew a high yield of 3.890 percent and a bid-to-cover ratio of 2.33, while the ten previous seven-year note auctions had an average bid-to-cover ratio of 2.50.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
On Monday, the Treasury revealed this month’s auction of $42 billion worth of two-year notes attracted slightly above average demand, while this month’s auction of $43 billion worth of five-year notes attracted slightly below average demand.
Trading activity was somewhat subdued, however, with a lack of major U.S. economic data keeping some traders on the sidelines.
Reports on durable goods orders and new home sales may attract attention on Wednesday along with the minutes of the latest Federal Reserve meeting, although many traders will already have headed out for the Thanksgiving Day holiday.
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