Treasuries Close Modestly Lower After Seeing Early Strength

(RTTNews) - After moving to the upside early in the session, treasuries gave back ground over the course of the trading day on Monday to close modestly lower.

Bond prices pulled back off their early highs and spent the afternoon moving roughly sideways before closing just below the unchanged line. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.1 basis points to 3.818 percent.

The slight pullback by treasuries may have partly reflected profit taking following the strong upward move seen over the two previous sessions, which came amid optimism about the outlook for interest rates.

While the Federal Reserve is still widely expected to lower interest rates next month, traders may feel the rate cut is already priced into the bond markets.

During his speech at the Jackson Hole Economic Symposium last Friday, Fed Chair Jerome Powell said the "time has come for policy to adjust" but noted the "timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

According to CME Group's FedWatch Tool, there is a 69.5 percent chance of a quarter point rate cut at the September 17-18 meeting and a 30.5 percent chance of a half point rate cut.

The modestly lower close by treasuries also came after the Commerce Department released a report showing a sharp increase by new orders for U.S. manufactured durable goods in the month of July.

The Commerce Department said durable goods orders spiked by 9.9 percent in July after tumbling by a revised 6.9 percent in June.

Economists had expected durable goods orders to jump by 4.0 percent compared to the 6.7 percent plunge that had been reported for the previous month.

The substantial rebound by durable goods orders came as orders for transportation equipment skyrocketed by 34.8 percent in July after plummeting by 20.6 percent in June.

Excluding the surge in orders for transportation equipment, durable goods orders dipped by 0.2 percent in July after inching up by 0.1 percent in June. Ex-transportation orders were expected to come in unchanged.

Trading on Tuesday may be impacted by reaction to a report on consumer confidence in the month of August, although activity may be somewhat subdued ahead of the release of more closely watched data later in the week.