Treasuries Close Slightly Lower But Well Off Worst Levels

(RTTNews) - After coming under pressure in early trading on Wednesday, treasuries regained some ground over the course of the session but still closed slightly lower.

While bond prices climbed well off their worst levels, they were unable to break into positive territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged up by less than a basis point to 2.637 percent.

The early weakness among treasuries was partly due to the release of a report from the Federal Reserve showing a bigger than expected increase in industrial production in the month of March.

The report said industrial production increased by 0.7 percent in March after surging up by an upwardly revised 1.2 percent in February.

Economists had been expecting production to rise by about 0.5 percent compared to the 0.6 percent increase originally reported for the previous month.

"The U.S. economy is now showing its true colors after the weakness triggered by the bleakest of winters," said Paul Dales, Senior U.S. Economist at Capital Economics. "There is scope for production to rise rapidly in the coming months too."

A separate report from the Commerce Department showed a notable increase in housing starts in the month of March, although starts still came in below economist estimates.

Meanwhile, the recovery attempt by treasuries was partly due to comments from Fed Chair Janet Yellen, who indicated that the central bank will keep benchmark interest rates at exceptionally low levels for a considerable time.

Speaking to the Economic Club of New York, Yellen acknowledged that economic growth slowed over the winter but suggested that a significant part of the weakness was due to unusually cold winter weather.

She insisted again that the Fed will remain highly accommodative until employment and inflation reach healthier levels.

Later in the day, the Fed's Beige Book noted that economic activity has increased in most regions of the country since the previous report.

The Beige Book, a compilation of anecdotal evidence on economic conditions from each of the twelve Fed districts, noted that some districts reported a rebound in activity following weather-related slowdowns earlier in the year.

While trading on Thursday may be impacted by the release of reports on weekly jobless claims and Philadelphia-area manufacturing, activity may be somewhat subdued ahead of the holiday on Friday.