Treasuries Remain Firmly Positive After Early Move To The Upside

After ending the previous session roughly flat, treasuries showed a strong move to the upside during trading on Wednesday.

Bond prices moved notably higher early in the session and remained firmly positive throughout the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 8.6 basis points to 4.789.

The early strength among treasuries came as the release of some weaker than expected U.S. economic data eased concerns about the outlook for interest rates ahead.

Payroll processor ADP released a report before the start of trading showing private sector employment in the U.S. increased by less than expected in the month of October.

The report said private sector employment climbed by 113,000 jobs in October after rising by 89,000 jobs in September. Economists had expected employment to jump by 150,000 jobs.

A separate report released by the Institute for Supply Management showed manufacturing activity in the U.S. unexpectedly contracted at a faster rate in the month of October.

The ISM said its manufacturing PMI fell to 46.7 in October from 49.0 in September, with a reading below 50 indicating a contraction. Economists had expected the index to come in unchanged compared to the previous month.

Treasuries remained firmly positive after the Federal Reserve announced its widely expected decision to leave interest rates unchanged.

The Fed said it decided to maintain the target range for the federal funds rate at 5.25 to 5.50 percent in an effort to support its dual goals of maximum employment and inflation at a rate of 2 percent over the longer run.

The accompanying statement was little changed from September, although the Fed did upgrade its assessment of U.S. economic activity.

With regard to the outlook for rates, the statement suggests the Fed is still considering additional rate hikes in an effort to return inflation to its 2 percent objective.

The central bank said it will consider the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments in determining whether further increases may be appropriate.

The Fed’s next monetary policy meeting is scheduled for December 12-13, with CME Group’s FedWatch Tool currently indicating an 80.1 percent chance rates will remain unchanged and a 19.8 percent chance of a quarter point rate hike.

In his post-meeting press conference, Fed Chair Jerome Powell acknowledged recent data showing a slowdown in the pace of price growth but argued the process of getting inflation down to 2 percent has “a long way to go.”

Powell also said the Fed has not made any decisions about future policy meetings but stressed the central bank is not thinking about rate cuts right now at all.

The Fed chief also said he does not believe it would be difficult to resume raising rates even if the central bank decides to leave interest rates unchanged again in December.

“The idea that it would be difficult to raise again after stopping for a meeting or two is just not right,” Powell said. “The Committee will always do what it thinks is appropriate at the time.”

Meanwhile, the Treasury Department announced it intends to continue gradually increasing coupon auction sizes in the upcoming November 2023 to January 2024 quarter.

The Treasury said it plans to auction $112 billion worth of long-term securities next week, including $48 billion worth of three-year notes, $40 billion worth of ten-year notes and $24 billion worth of thirty-year bonds.

Last month, the Treasury sold $46 billion worth of three-year notes, $35 billion worth of ten-year notes and $20 billion worth of thirty-year bonds.

The Treasury also said it intends to continue gradually increasing coupon auction sizes in the upcoming November 2023 to January 2024 quarter.

In a letter, Treasury officials said the recent increase in treasury yields is “partially a response to stronger-than-expected activity and labor market data.”

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, while reports on initial jobless claims, labor productivity and factory orders may also attract attention.

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