Treasuries Extend Pullback After Initially Showing A Lack Of Direction

(RTTNews) - Treasuries moved moderately lower over the course of the trading session on Tuesday after initially showing a lack of direction.

Bond prices drifted lower as the day progressed, extending the sharp pullback seen over the two previous sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.7 basis points to 1.697 percent.

With the increase, the ten-year yield closed higher for the third straight session after ending last Thursday's trading at its lowest closing level in almost four years.

The continued decline by treasuries came amid Federal Reserve Chair Janet Yellen's semi-annual testimony before the Senate Banking Committee.

In her prepared remarks, Yellen said a cautious approach on interest rates remains appropriate amid considerable uncertainty about the economic outlook.

"Proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess whether growth is returning to a moderate pace, whether the labor market will strengthen further, and whether inflation will continue to make progress," she said.

Yellen suggested that the Fed will need to see an improvement in the labor market before considering another rate hike.

The Fed chief also warned that Thursday's referendum on whether Britain will remain in the European Union could have "significant economic repercussions."

A poll conducted by ORB for the Daily Telegraph found that 53 percent of British voters support remaining in the EU compared to 46 percent that prefer to leave.

However, a separate poll conducted by YouGov for the Times showed voters split 44 percent to 42 percent in favor of the so-called Brexit, with a significant 9 percent undecided.

Treasuries saw some further downside following the release of the results of the Treasury Department's auction of $34 billion worth of five-year notes, which attracted below average demand.

The five-year note auction drew a high yield of 1.218 percent and a bid-to-cover ratio of 2.29, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.45.

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

Looking ahead, the Treasury is due to finish off this week's series of long-term securities auctions on Wednesday with the sale of $28 billion worth of seven-year notes.

Trading on Wednesday may also be impacted by a report on existing home sales as well as Yellen's second day of testimony on Capitol Hill.