Treasuries Close Only Slightly Higher After Early Rally

(RTTNews) - After showing a strong move to the upside in early trading on Wednesday, treasuries gave back ground over the course of the session before closing slightly higher.

Bond prices managed to remain in positive territory but ended the day only just above the unchanged line. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 2.474 percent.

The early strength among treasuries was partly due to lingering geopolitical concerns due to the ongoing conflict in Ukraine.

News of intense fighting in the eastern Ukrainian city of Donetsk contributed to the buying interest as government forces continued their offensive against pro-Russian separatists.

Polish Foreign Minister Radoslaw Sikorski has warned that Russia could launch an invasion if Ukrainian forces continue to have success in their fight against the rebels.

However, treasuries pulled back off their best levels due in part to the release of a report showing an unexpectedly narrower U.S. trade deficit.

The Commerce Department report said the U.S. trade deficit narrowed to $41.5 billion in June from a revised $44.7 billion in May. The deficit had been expected to widen to $45.0 billion.

With the unexpectedly narrower trade deficit potentially leading to an upward revision to the pace of second quarter GDP growth, the data added to recent worries about the Federal Reserve raising interest rates sooner than anticipated.

Meanwhile, the Treasury Department also announced the details of next week's auctions of three-year and ten-year notes and thirty-year bonds.

The Treasury said it intends to auction $27 billion worth of three-year notes next Tuesday, $24 billion worth of ten-year notes next Wednesday and $16 billion worth of thirty-year bonds next Thursday.

Trading on Thursday may be impacted by reaction to developments overseas as well as a report on weekly jobless claims.