Treasuries Fall Sharply On Upbeat Data, Auction Results

(RTTNews) - Treasuries saw substantial weakness during trading on Wednesday, extending the pullback seen in the previous session.

Bond prices moved notably lower in early trading and remained firmly in negative territory throughout the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 7.2 basis points to 2.588 percent.

The early weakness among treasuries was partly due to some upbeat data out of Europe, including a report from Markit Economics showing an unexpected expansion in the euro zone private sector.

Markit said its composite purchasing managers' index rose to an eighteen-month high of 50.4 in July, up 1.7 points from June.

Further selling pressure was generated by a report from the U.S. Commerce Department showing that new home sales jumped to a five-year high in June.

The report said new home sales surged up by 8.3 percent to an annual rate of 497,000 in June from the revised May rate of 459,000.

The report is seen as a positive sign for the house market and added to concerns about the outlook for the Federal Reserve's stimulus program.

Treasuries saw some further downside following the release of the results of the Treasury Department's auction of $35 billion worth of five-year notes, which attracted below average demand.

The five-year note auction drew a high yield of 1.41 percent and a bid-to-cover ratio of 2.46, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.80.

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

Finishing off this week's series of long-term securities auctions, the Treasury is due to sell $29 billion worth of seven-year notes on Thursday.

Trading on Thursday could also be impacted by the release of reports on weekly jobless claims and durable goods orders.