Treasuries Turn Modestly Lower After Early Move To The Upside

(RTTNews) - Treasuries moved to the upside in early trading on Wednesday but came under pressure over the course of the session.

Bond prices pulled back well off their early highs and into negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, crept up by 1.1 basis points to 4.030 percent after hitting a low of 3.985 percent.

The downturn by treasuries came as bond traders expressed caution ahead of the release of key U.S. inflation data in the comings days.

The Labor Department's reports on consumer and producer price inflation, which are due to be released on Thursday and Friday, respectively, could have a significant impact on the outlook for interest rates.

With economists expecting the reports to show slowdowns in the annual rate of core price growth, the data could bolster optimism about near-term rate cuts by the Federal Reserve.

However, if the data surprises to the episode, it could add to recent skepticism about whether the Fed will begin cutting rates in March.

Ahead of the reports, CME Group's FedWatch Tool is currently indicating a 64.5 percent chance the Fed will cut rates by a quarter point at its March meeting.

Meanwhile, traders seemed to shrug off the results of the Treasury Department's auction of $37 billion worth of ten-year notes, which attracted above average demand.

The ten-year note auction drew a high yield of 4.024 percent and a bid-to-cover ratio of 2.56, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 2.46.

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 Labor Department's report on consumer price inflation is likely to be in the spotlight on Thursday, overshadowing a separate report on weekly jobless claims.