Treasuries Move To The Upside On Disappointing Economic Data

(RTTNews) - After moving notably higher over the course of the previous session, treasuries saw some further upside during trading on Wednesday.

Bond prices showed a strong upward move in early trading but gave back some ground in the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.7 basis points to 2.559 percent.

The early strength among treasuries was partly due to the release of a pair of disappointing U.S. economic reports, including a Commerce Department report showing a substantial downward revision to first quarter GDP.

The report showed that GDP tumbled by 2.9 percent in the first quarter compared to the previously estimated 1.0 percent drop. Economists had expected the revised data to show a 1.8 percent decrease.

The much steeper than previously estimated drop primarily reflected downward revisions to consumer spending and exports and an upward revision to imports.

Meanwhile, a separate Commerce Department report showed an unexpected decrease in durable goods orders in the month of May.

The Commerce Department said durable goods orders fell by 1.0 percent in May following a 0.8 percent increase in April. The pullback came as a surprise to economists, who had expected orders to increases by another 0.4 percent.

Excluding a steep drop in orders for transportation equipment, orders fell by a more modest 0.1 percent in May compared to a 0.4 percent increase in April.

However, treasuries pulled back off their best levels of the day following the release of the results of the Treasury Department's auction of $35 billion worth of five-year notes.

The five-year note auction drew a high yield of 1.670 percent and a bid-to-cover ratio of 2.74, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.68.

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 personal income and spending.

The personal income and spending report includes a reading on inflation that is favored by the Federal Reserve and is likely to be in focus in light of recent reports showing notable price growth.