After moving notably higher over the course of the two previous sessions, treasuries gave back some ground during trading on Tuesday.
Bond prices showed an initial move to the downside and remained stuck firmly in the red throughout the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 4.3 basis points to 1.590 percent.
The pullback by treasuries came as traders shrugged off the concerns about the coronavirus outbreak that contributed the advance over the two previous sessions.
Several companies have already warned about the impact of the virus, but traders seem confident the U.S. economy is strong enough to withstand the negative effects.
Federal Reserve Chairman Jerome Powell said during testimony before the House Financial Services Committee that the central bank is closely monitoring the coronavirus outbreak but also highlighted the resilience of the U.S. economy.
In prepared remarks, Powell noted some of the uncertainties around trade have diminished following the signing of the phase one U.S.-China trade deal but cautioned risks to the outlook remain.
“In particular, we are closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy,” Powell said.
However, Powell pointed out that the U.S. economy has recently appeared resilient to global headwinds, with economic activity increasing at a moderate pace over the second half of last year.
Treasuries showed little reaction to the release of the results of the Treasury Department’s auction of $38 billion worth of three-year notes, which attracted above average demand.
The three-year note auction drew a high yield of 1.394 percent and a bid-to-cover ratio of 2.56, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.48.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
Powell is scheduled to testify before the Senate Banking Committee on Wednesday, although his prepared remarks are likely to mirror today’s testimony.
Bond traders may keep an eye on the results of the Treasury Department’s auction of $27 billion worth of ten-year notes.
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