Treasuries Show Significant Move To The Downside

(RTTNews) - Treasuries showed a notable move to the downside during trading on Wednesday, as traders continued to react to comments from Federal Reserve Chair Janet Yellen.

Bond prices came under pressure early in the day 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 by 8 basis points to 2.309 percent.

With the sizable increase on the day, the ten-year yield reached its highest closing level in two months.

The weakness among treasuries came as traders continued to digest the hawkish comments Yellen made on Tuesday.

"We should be wary of moving too gradually," Yellen said regarding the outlook for interest rates in a speech to the National Association for Business Economics meeting in Cleveland.

She added, "Given that monetary policy affects economic activity and inflation with a substantial lag, it would be imprudent to keep monetary policy on hold until inflation is back to 2%."

On the U.S. economic front, a report from the Commerce Department showed a bigger than expected jump in durable goods orders in the month of August.

The report said durable goods orders surged up by 1.7 percent in August after plunging by 6.8 percent in July. Economists had expected orders to climb by 1.0 percent.

Excluding an increase in orders for transportation equipment, durable goods orders edged up by 0.2 percent in August after climbing by 0.8 percent in July. The uptick matched economist estimates.

The Commerce Department also said orders for non-defense capital goods excluding aircraft, an indicator of business spending, rose by 0.9 percent in August after climbing by 1.1 percent in July.

Michael Pearce, U.S. economist at Capital Economics said the data suggests that business equipment investment is set for another big gain in the third quarter.

Meanwhile, a separate report from the National Association of Realtors showed a steep drop in pending home sales in the month of August.

NAR said its pending home sales index plunged by 2.6 percent to 106.3 in August from 109.1 in July. The index had been expected to dip by 0.5 percent.

With the much bigger than expected decrease, the pending home sales index dropped to its lowest reading since hitting 106.1 in January of 2016.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

Treasuries saw continued weakness following the release of the results of the Treasury Department's auction of $34 billion worth of five-year notes.

The five-year note auction drew a high yield of 1.911 percent and a bid-to-cover ratio of 2.52, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.47.

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 Treasury is due to finish off this week's series of long-term securities auctions with the sale of $28 billion worth of seven-year notes on Thursday.

Trading on Thursday may also be impacted by reaction to reports on weekly jobless claims and second quarter GDP.