Treasuries Give Back Ground On Disappointing Auction

(RTTNews) - After moving higher over the course of the three previous sessions, treasuries gave back some ground during trading on Thursday.

Bond prices initially showed a lack of direction but slid firmly into the red as the day progressed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, advanced by 4.7 basis points to 2.016 percent.

The pullback by treasuries partly reflected a negative reaction to the Treasury Department's auction of $29 billion worth of seven-year notes, which attracted below average demand.

The seven-year note auction drew a high yield of 1.834 percent and a bid-to-cover ratio of 2.37, while the ten previous seven-year note auctions had an average bid-to-cover ratio of 2.52.

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, "The seven-year note auction was soft as the yield was above the when issued and the bid to cover of 2.37 was below the previous 12-month average of 2.56 and the weakest since November '13."

Meanwhile, bond traders seemed to shrug off a report from the Labor Department showing a steep drop in U.S. consumer prices in the month of January.

The Labor Department said its consumer price index tumbled by 0.7 percent in January, reflecting the steepest monthly drop by the index December of 2008.

Reflecting the monthly decrease, the Labor Department said the consumer price index for January was down by 0.1 percent compared to the same month a year ago, the first annual drop since October of 2009.

While the annual drop technically reflects deflation, most analysts said the data is not likely to impact the outlook for monetary policy.

In her congressional testimony on Wednesday, Federal Reserve Chair Janet Yellen acknowledged that inflation is likely to move lower before it goes higher.

A separate report from the Labor Department showed a bigger than expected increase in weekly jobless claims, while the Commerce Department reported a substantial rebound in durable goods orders in January.

Trading on Friday may be impacted by another batch of U.S. economic data, including reports on fourth quarter GDP, consumer sentiment, pending home sales, and Chicago-area business activity.