Treasuries Close Modestly Lower As Fed Announcement Looms

(RTTNews) - Treasuries moved modestly lower over the course of the trading day on Monday, partly offsetting the strength seen in the previous session.

After initially showed a lack of direction, bond prices slid into negative territory as the day progressed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.2 basis points to 2.491 percent.

The weakness among treasuries came as traders looked ahead to the Federal Reserve's announcement of its latest monetary policy decision on Wednesday.

The Fed is widely expected to announce another $10 billion reduction in the pace of its asset purchases, slowing the pace of purchases to $25 billion a month.

Traders are likely to pay close attention to the Fed's accompanying statement, looking for indications regarding the outlook for interest rates.

Along with the Fed announcement, traders are also looking ahead to the closely watched monthly jobs report on Friday as well as reports on second quarter GDP, manufacturing activity, consumer confidence, and personal income and spending.

A disappointing two-year note auction also weighed on treasuries, as the sale once again attracted below average demand.

The two-year note auction drew a high yield of 0.544 percent and a bid-to-cover ratio of 3.22. 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 2-year note auction, highly sensitive to expectations for future Fed rate hikes, was soft," said Peter Boockvar, managing director at the Lindsey Group. "The bid to cover of 3.22 was below the previous 12 month average of 3.38 and the lowest since March."

He added, "Also of note and reflecting weak demand, dealers got stuck with almost 59% of the auction, well more than the one year average of 50% and the most since May 2013."

Meanwhile, traders largely shrugged off a report from the National Association of Realtors showing an unexpected drop in pending home sales in the month of June.

NAR said its pending home sales index dropped by 1.1 percent to 102.7 in June after surging up by 6 percent to 103.8 in May. The decrease came as a surprise to economists, who had expected pending home sales to increase by another 0.5 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

While activity may be somewhat subdued as the Fed's two-day meeting gets underway, trading on Tuesday could be impacted by the release of reports on home prices and consumer confidence.

Bond traders are also likely to keep an eye on the results of the Treasury Department's auction of $35 billion worth of five-year notes.