Treasuries Close Notably Higher In Reaction To Yellen's Testimony

(RTTNews) - Treasuries moved sharply higher over the course of the trading day on Tuesday in reaction to remarks by Federal Reserve Chair Janet Yellen.

Bond prices showed a strong move to the upside in morning and early afternoon trading before moving roughly sideways thereafter. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 7.1 basis points to 1.988 percent.

The strength among treasuries came as Yellen's semi-annual monetary policy testimony before the Senate Banking Committee was widely interrupted as dovish.

In prepared remarks, Yellen indicated that the Fed is not likely to begin raising interest rates for at least the next couple monetary policy meetings.

The Fed Chief also suggested that the central bank will hike interest rates only when they are "reasonably confident" that annual inflation is moving back toward their 2 percent target.

Jay Morelock, an economist at FTN Financial, said, "With regard to forward guidance, Yellen highlighted that once the word 'patience' was dropped from Fed communication, it will not mean that a rate hike is imminent."

"This tactic is an attempt to prevent a taper-tantrum like reaction to the drop of the word 'patient,' as well giving the Fed more flexibility on the timing of the first hike," he added.

Treasuries may also have benefited from the release of a report from the Conference Board showing a significant pullback in U.S. consumer confidence in the month of February.

The Conference Board said its consumer confidence index tumbled to 96.4 in February from an upwardly revised 103.8 in January, while economists had expected the index to drop to a reading of 99.1.

Additionally, the Treasury Department sold $26 billion worth of two-year notes on the day, attracting slightly above average demand.

The two-year note auction drew a high yield of 0.603 percent and a bid-to-cover ratio of 3.45, while the ten previous two-year note auctions had an average bid-to-cover ratio of 3.41.

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

Yellen's second day of testimony on Capitol Hill is likely to attract some attention on Wednesday, although she may not provide much new information.

Bond traders are also likely to keep an eye on a report on new home sales as well as the results of an auction of five-year notes.