Treasuries Move Notably Lower Following Upbeat Economic Data

(RTTNews) - Treasuries moved notably lower during trading on Friday as traders reacted to the latest batch of U.S. economic data.

Bond prices came under pressure in early trading and remained firmly negative throughout the session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 6.5 basis points to 1.762 percent.

The weakness among treasuries came as the largely upbeat data eased concerns about the possibility of a recession while also renewing uncertainty about the outlook for interest rates.

The Commerce Department released a report this morning showing that personal income and spending both increased by 0.5 percent in January, exceeding estimates.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said the increase in spending indicates there is no danger of the economy falling into an imminent recession.

However, the report also said a key reading on core consumer prices rose by 0.3 percent in January, pushing the annual rate of growth up to 1.7 percent from 1.5 percent.

"Yes, 1.7% is still below the Fed's 2% target," said Ashworth. "But remember that the Fed's current forecast is that core inflation would be only 1.6% at the end of this year."

He added, "Some Fed officials wanted to wait until they could see the whites of inflation's eyes. Well, here it is coming over the horizon."

A separate report from the Commerce Department showed that economic growth slowed by less previously estimated in the fourth quarter of 2015.

The report said real gross domestic product increased by 1.0 percent in the fourth quarter, reflecting an upward revision from the initially reported 0.7 percent growth.

The University of Michigan also released a report showing a smaller than initially estimated drop in consumer sentiment in February.

Treasuries remained stuck in the red as the Treasury Department revealed the results of the rescheduled auction of $28 billion worth of seven-year notes, which attracted below average demand.

The seven-year note auction drew a high yield of 1.568 percent and a bid-to-cover ratio of 2.25, while the ten previous seven-year note auctions had an average bid-to-cover ratio of 2.49.

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

The auction was originally scheduled to be held on Thursday but was delayed until today due to a technical issue.

Economic data is likely to continue to attract attention next week, particularly the closely watched monthly jobs report due next Friday.

Ahead of the jobs report, traders are likely to keep an eye on reports on manufacturing and service sector activity, pending home sales, and private sector employment.