Treasuries Move Modestly Lower, Extending Downward Trend

(RTTNews) - Treasuries moved modestly lower during trading on Tuesday, extending the downward trend seen over the past two weeks.

Bond prices moved to the downside in early trading and remained stuck in the red throughout the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, crept up by 2.2 basis points to 2.635 percent.

With the uptick on the day, the ten-year yield closed higher for the eighth time in the past nine sessions, reaching its highest closing level in almost a month.

The early weakness among treasuries was partly due to news out of China, as the Bank of China lowered the reserve requirement for banks offering loans to the rural sector and small businesses by 50 basis points.

Peter Boockvar, managing director at the Lindsey Group, said, "This move follows other fiscal steps over the past month that has helped the rail industry, some easing of housing restrictions and tax incentives for small business."

"China is doing their best to balance the need to controllably deflate its property bubble without taking down the whole economy," he added.

Additionally, the Commerce Department released a report showing a much bigger than expected increase in U.S. wholesale inventories in April

The report said wholesale inventories surged up by 1.1 percent in April, matching the increase seen in the previous month. Economists had expected inventories to increase by about 0.5 percent.

Boockvar noted that the inventories data may raise second quarter GDP estimates by one to two tenths if confirmed by the overall business inventories report due to be released on Thursday.

Treasuries remained stuck in the red following the release of the results of the Treasury Department's auction of $28 billion worth of three-year notes.

The three-year note auction drew a high yield of 0.930 percent and a bid-to-cover ratio of 3.41, while the ten previous three-year note auctions had an average bid-to-cover ratio of 3.32.

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

Wednesday represents another relatively quiet day on the U.S. economic front, although bond traders are likely to keep a close eye on the results of the Treasury's auction of $21 billion worth of ten-year notes.