Treasuries Show Another Strong Move Back To The Upside

Treasuries showed a strong move to the upside during trading on Wednesday, extending the substantial rebound seen in the previous session.

Bond prices moved sharply higher in early trading and remained firmly positive throughout the day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 9.3 basis points to 4.015 percent.

The ten-year yield added to the 12.6 basis point slump seen on Tuesday, pulling back further off Monday’s fourteen-year closing high.

The extended recovery by treasuries came as traders continued to embrace the idea of the Federal Reserve slowing the pace of interest rate hikes at upcoming meetings.

The Fed is widely expected to raise rates by another 75 basis points next week, but traders have recently grown increasingly hopeful for a downshift in December.

A recent Wall Street Journal report suggesting some Fed officials are growing uneasy about the impact of the aggressive rate hikes helped spark the optimism despite largely hawkish public comments.

Potentially adding to the optimism about the Fed, the Bank of Canada on Wednesday announced its decision to raise interest rates by 50 basis points compared to the 75 basis point rate hike expected by economists.

The Bank of Canada acknowledged the economic impact of recent rate hikes but still said further increases will be need to contain inflation.

Treasuries remained firmly positive after the Treasury Department revealed this month’s auction of $43 billion worth of five-year notes attracted above average demand.

The five-year note auction drew a high yield of 4.192 percent and a bid-to-cover ratio of 2.48, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.41.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

In economic news, the Commerce Department released a report showing new home sales in the U.S. pulled back sharply in September after unexpectedly skyrocketing in August, although the decrease was smaller than expected.

The report showed new home sales tumbled by 10.9 percent to an annual rate of 603,000 in September after soaring by 24.7 percent to a revised rate of 677,000 in August.

Economists had expected new home sales to plunge by 14.6 percent to a rate of 585,000 from the 685,000 originally reported for the previous month.

The latest batch of U.S. economic data may impact trading on Thursday, with traders likely to keep an eye on reports on weekly jobless claims, durable goods orders and third quarter GDP.

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