Treasuries Close Firmly In The Red After Fed Minutes

(RTTNews) - Treasuries saw considerable volatility on Thursday following the release of the minutes of the latest Federal Reserve meeting before closing firmly in the red.

Bond prices initially reacted positively to the Fed minutes but pulled back sharply going into the close. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 4.6 basis points to 2.108 percent.

The late-day pullback by treasuries may partly reflect a rally by stocks, which reacted positively to the minutes of the Fed's September meeting.

While the minutes said members agreed the economic outlook had not been materially altered, the Fed decided it was prudent to wait for additional information before raising interest rates.

"Recent information on real U.S. economic activity was generally stronger than expected, but equity prices declined, the foreign exchange value of the dollar appreciated further, and indicators of foreign economic growth were generally weak," the minutes said.

Members also expressed concerns about below-target inflation, although most said the conditions for raising rates had been met or would likely be met by the end of the year.

The minutes combined with recent jobs and trade data have reinforced the view that the Fed will not raise rates later this month and may delay its first rate hike into next year.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "Admittedly, there are still two employment reports scheduled for release before the FOMC meets in December."

"But at this stage we think it would take a major turnaround in payroll growth, to well above 200,000 per month, to persuade officials to support a December rate hike," he added.

Earlier in the day, the Treasury Department sold $13 billion worth of thirty-year bonds, attracting slightly above average demand.

The thirty-year bond auction drew a high yield of 2.914 percent and a bid-to-cover ratio of 2.46, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.35.

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

Trading on Friday may continue to be impacted by reaction to the Fed minutes, although traders are also likely to keep an eye on reports on import and export prices and wholesale inventories.