Treasuries Close Slightly Higher After Seeing Initial Weakness

(RTTNews) - After initially showing a moderate move to the downside, treasuries rebounded over the course of the trading day on Tuesday to close slightly higher.

Bond prices climbed well off their early lows, ending the day just above the unchanged line. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 2.507 percent.

The modest strength seen at the close of trading was partly due to a positive reaction to the results of the Treasury Department's auction of $35 billion worth of five-year notes.

The five-year note auction drew a high yield of 1.30 percent and a bid-to-cover ratio of 2.65, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.68.

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

The slightly higher close for treasuries also came as traders looked ahead to the outcome of the Federal Reserve's monetary policy meeting.

The Fed is widely expected to maintain it asset purchase program at the current pace when it announces its decision Wednesday afternoon, although traders will be looking for any indications regarding future tapering.

Ahead of the Fed announcement, traders largely shrugged off a mixed batch of U.S. economic data, including a Commerce Department report that showed an unexpected drop in retail sales.

The report said retail sales edged down by 0.1 percent in September following a 0.2 percent increase in August. Economists had expected retail sales to come in unchanged.

Excluding a steep drop in auto sales, however, retail sales rose by 0.4 percent in September compared to a 0.1 percent uptick in the previous month.

Separately, the Labor Department released a report showing a modest decrease in producer prices in September, with a notable drop in food prices offsetting an increase in energy prices.

The Labor Department said its producer price index edged down by 0.1 percent in September following a 0.3 percent increase in August. The drop surprised economists, who had expected prices to increase by about 0.2 percent.

Excluding food and energy prices, the core producer price index inched up by 0.1 percent in September after coming in unchanged in the previous month. The modest increase matched economist estimates.

Meanwhile, the Conference Board released a report showing a substantial deterioration in consumer confidence in the month of October, with the government shutdown weighing on expectations.

The Conference Board said its consumer confidence index tumbled to 71.2 in October from an upwardly revised 80.2 in September. Economists had been expecting the index to fall to 75.0 from the 79.7 originally reported for the previous month.

Trading activity on Wednesday may remain somewhat subdued in the lead up to the Fed announcement, which is not due until late in the trading day.

Ahead of the announcement from the Fed, traders are likely to keep an eye on reports on private sector employment and consumer price inflation.

Additionally, the Treasury is due to sell $29 billion worth of seven-year notes, finishing off this week's series of long-term securities auctions.