Treasuries Close Firmly Positive Amid Global Economic Worries

(RTTNews) - Treasuries showed a strong move to the upside over the course of the trading day on Tuesday, extending a recent upward trend.

Bond prices moved steadily higher for much of the session before closing firmly in positive territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dropped by 7.5 basis points to 2.35 percent.

With the decrease on the day, the ten-year yield resumed its recent downward move, hitting its lowest closing level in over a month.

The rally by treasuries was partly due to concerns about the global economic outlook following the release of more disappointing German economic data.

After reporting a steep drop in German factory orders on Monday, the German Federal Statistical Office released a report showing that German industrial output fell 4 percent in August compared to economist estimates for a 1.5 percent decrease.

The sharp pullback, which came on the heels of a 1.6 percent increase in July, pushed the annual growth rate back into negative territory for the first time since July of 2013.

Jonathan Loynes, chief European economist at Capital Economics, said the data "all but confirmed that German industry is back in recession and underlined the need for both the ECB and the German Government to give the euro-zone's biggest economy much more policy support."

Adding to the worries about the global economy, the International Monetary Fund downgraded its global growth forecast for both this year and next.

Describing the global economic recovery as weak and uneven, the IMF said it now expects global growth to average 3.3 percent in 2014, down from 3.4 percent in July. The group also lowered its growth forecast for 2015 to 3.8 percent from 4.0 percent.

Treasuries saw continued strength following the release of the results of the Treasury Department's auction of $27 billion worth of three-year notes, which attracted slightly above average demand.

The three-year note auction drew a high yield of 0.994 percent and a bid-to-cover ratio of 3.42, while the ten previous three-year note auctions had an average bid-to-cover ratio of 3.32.

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

Peter Boockvar, managing director at the Lindsey Group, said, "Under the cross currents of a challenging global growth environment and a U.S. labor market that continues to get tighter and heightens the debate of what comes next from the Fed, the 3-year note auction was pretty good."

Trading activity on Wednesday may be somewhat subdued in the lead-up to the release of the minutes of the latest Federal Reserve meeting.

The minutes, which are scheduled to be released late in the trading day, may shed some light on the outlook for monetary policy.

Bond traders are also likely to keep an eye on the results of the Treasury's auction of $21 billion worth of ten-year notes.