Treasuries Close Modestly Lower Following Late-Day Weakness

After showing a lack of direction for much of the session, treasuries moved to the downside going into the close of trading on Wednesday.

Bond prices came under pressure late in the session before closing modestly lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.1 basis points to 2.875 percent.

The late-day weakness among treasuries came following the release of the Federal Reserve’s Beige Book, which said economic activity continued to expand across the U.S.

Ten of the twelve Fed districts reported moderate or modest growth, while the Dallas district reported strong growth due to strength in the energy sector and the St. Louis district described growth as slight.

The Fed noted manufacturers across the country expressed concern about tariffs, with many districts citing new trade policies for higher prices and supply disruptions.

Overall, prices increased at a modest to moderate pace on average, with several districts reporting upticks in inflation.

The Beige Book noted employment continued to rise at a modest to moderate pace in most districts. All districts reported that labor markets were tight and many said that the inability to find workers constrained growth, the Fed added.

The Fed is scheduled to hold a two-day meeting policy meeting on July 31st and August 1st, with the central bank widely expected to leave interest rates unchanged.

After raising rates twice this year to the current range of 1.75 to 2 percent, the Fed has signaled two more rate hikes before the end of the year.

Earlier in the day, the Commerce Department released a report showing a sharp pullback in new residential construction in the U.S. in the month of June.

The Commerce Department said housing starts plunged by 12.3 percent to an annual rate of 1.173 million in June after jumping by 4.8 percent to a revised rate of 1.337 million in May.

Economists had expected housing starts to drop by 2.2 percent to a rate of 1.320 million from the 1.350 million originally reported for the previous month.

With the much bigger than expected decrease, housing starts fell to their lowest annual rate since hitting 1.158 million last September.

Building permits, an indicator of future housing demand, also fell by 2.2 percent to an annual rate of 1.273 million in June after tumbling by 4.6 percent to a rate of 1.301 million in May.

The continued decrease came as a surprise to economists, who had expected building permits to climb to an annual rate of 1.330 million.

The choppy trading seen for most of the session came as traders kept an eye on Fed Chairman Jerome Powell’s second day of testimony on Capitol Hill.

Trading on Thursday may be impacted by reaction to reports on weekly jobless claims, leading economic indicators and Philadelphia-area manufacturing activity.

The Treasury Department is also due to announce the details of next week’s auctions of two-year, five-year and seven-year notes.

by RTTNews Staff Writer

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