Treasuries Pull Back Off Early Highs But Remain Positive

Following the pullback seen in the previous session, treasuries moved back to the upside during the trading day on Tuesday.

Bond prices gave back ground after an early rally but remained in positive territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.3 basis points to 2.787 percent after hitting a three-month intraday low of 2.707 percent.

The early strength among treasuries came as stocks on Wall Street came under pressure following a warning of weaker than expected results from retail giant Walmart (WMT).

Treasuries also benefited from their appeal as a safe haven ahead of the Federal Reserve’s monetary policy announcement on Wednesday.

The Fed is widely expected to announce another 75 basis point rate hike as part of its efforts to combat elevated inflation.

In U.S. economic news, the Commerce Department released a report showing new home sales pullback by more than expected in the month of June.

The report said new home sales plunged by 8.1 percent to an annual rate of 590,000 in June after jumping by 6.3 percent to a revised rate of 642,000 in May.

Economists had expected new home sales to tumble by 5.2 percent to an annual rate of 660,000 from the 696,000 originally reported for the previous month.

With the bigger than expected decrease, new home sales slumped to their lowest annual rate since hitting 582,000 in April 2020.

A separate report released by the Conference Board showed consumer confidence in the U.S. deteriorated by more than expected in the month of July.

The Conference Board said its consumer confidence index slid to 95.7 in July from a downwardly revised 98.4 in June. Economists had expected the index to drop to 96.8 from the 98.7 originally reported for the previous month.

Meanwhile, the Treasury Department revealed this month’s auction of $46 billion worth of five-year notes attracted slightly above average demand.

The five-year note auction drew a high yield of 2.860 percent and a bid-to-cover ratio of 2.46, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.43.

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 Wednesday is likely to be driven by reaction to the Federal Reserve’s monetary policy decision and accompanying statement.

Ahead of the Fed announcement, traders are likely to keep an eye on reports on durable goods orders and pending home sales.

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