Treasuries Close Modestly Lower As ECB Decision Looms

(RTTNews) - Extending the recent pullback off last week's highs, treasuries moved modestly lower during trading on Wednesday, although selling pressure remained relatively subdued.

Bond prices moved to the downside in early trading and remained stuck in the red throughout the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 1.3 basis points to 2.606 percent.

The modest uptick represents the fifth straight session of gains by the ten-year yield, which has bounced well off the eleven-month closing low set last Wednesday.

An upbeat report on U.S. service sector activity contributed to the continued weakness among treasuries, with the Institute for Supply Management's index of activity in the sector rising by more than expected in the month of May.

The ISM said its non-manufacturing index climbed to 56.3 in May from 55.2 in April, with a reading above 50 indicating growth in the service sector. Economists had been expecting the index to show a more modest increase to a reading of 55.5.

The bigger than expected increase lifted the non-manufacturing index to its highest level since reaching 57.9 in August of 2013.

Jay Morelock, an economist at FTN Financial, said, "The ISM non-manufacturing index covers almost 90% of the economy, making above-consensus strength a positive sign for increased growth in Q2."

The better than expected service sector data helped overshadow a separate report from payroll processor ADP showing that the pace of private sector job growth slowed more than expected in May.

ADP said private sector employment rose by 179,000 jobs in May following an increase of 215,000 jobs in April. Economists had been expecting an increase of about 210,000 jobs.

The Commerce Department also released a report showing that the U.S. trade deficit widened by much more than expected in April amid a drop in the value of exports and an increase in the value of imports.

Late in the trading day, the Federal Reserve's Beige Book noted that all twelve districts said economic activity expanded during the current reporting period.

Nonetheless, traders seemed reluctant to make any significant moves ahead of the European Central Bank meeting on Thursday and the release of the closely watched monthly U.S. jobs report on Friday.

Trading on Thursday may be driven by reaction to the ECB decision, with the central bank widely expected to announce new stimulus measure. The news from the ECB is likely to overshadow the Labor Department's report on weekly jobless claims.