Treasuries Close Modestly Higher After Recovering From Early Weakness

Treasuries extended a recent downward trend in early trading on Friday but staged a significant recovery over the course of the session.

Bond prices climbed well off their early lows, ending the day modestly higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 1.3 basis points to 4.213 percent.

The pullback by the ten-year yield came after it surged to a fifteen-year intraday high of 4.33 percent in early trading.

Concerns about the outlook for interest rates contributed to the early weakness among treasuries, as traders looked ahead to the Federal Reserve’s monetary policy meeting less than two weeks away.

The subsequent rebound by treasuries came after a report from the Wall Street Journal suggested Fed officials are likely to debate whether and how to signal plans for a smaller rate hike in December following a widely expected 75 basis point increase in early November.

While recent comments from Fed officials have generally been hawkish, the journal said a few are signaling greater unease with the aggressive pace of rate hikes.

“The 10-year Treasury yield looked like it had a clear path towards 4.40%, but that quickly changed and now it seems like the October bond market selloff is ready for a break,” said Edward Moya, senior market analyst at OANDA.

He added, “Policymakers still need to look at the data and right now the risks of overtightening should still remain on the table.”

The volatility on the day may also have reflected below average volume, as some traders stuck to the sidelines amid a lack of major U.S. economic data.

Next week, traders are likely to keep a close eye on a report on personal income and spending, which includes a reading on inflation said to be preferred by the Fed.

The inflation reading contained in the personal income and spending report may be in the spotlight, although traders are also likely to keep an eye on reports on consumer confidence, new home sales, and durable goods orders.

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