Treasuries Recover From Early Weakness Following Ten-Year Note Auction

After initially extending the sell-off seen during last Friday’s session, treasuries regained ground over the course of the trading day on Monday.

Bond prices climbed well off their worst levels of the day before ending the session roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 4.251 percent after reaching a high of 4.301 percent.

The early weakness among treasuries came as traders continued to react to last Friday’s stronger than expected U.S. employment data.

The jobs report partly offset recent optimism the Federal Reserve could pivot to cutting interest rates as soon as March 2024, with the central bank now seen as more likely to wait until May to begin lowering rates.

Selling pressure remained somewhat subdued, however, as traders seemed reluctant to make significant moves ahead of the Fed’s monetary policy announcement on Wednesday.

With the Fed widely expected to leave interest rates unchanged, traders are likely to focus more closely on the central bank’s accompanying statement and projections.

The subsequent recovery by treasuries came after the Treasury Department revealed this month’s auction of $37 billion worth of ten-year notes attracted modestly above average demand.

The ten-year note auction drew a high yield of 4.296 percent and a bid-to-cover ratio of 2.53, while the ten previous ten-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.

Trading on Tuesday is likely to be driven by reaction to a report on consumer price inflation in the month of November, which could have a significant impact on the outlook for interest rates.

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