Treasuries showed a lack of direction throughout morning trading on Tuesday but slid more firmly into negative territory in the afternoon.
Bond prices eventually ended the day modestly lower, extending the pullback seen in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.6 basis points to 1.827 percent.
With the uptick on the day, the ten-year yield continued to rebound after hitting at its lowest intraday level in nearly a month on Monday.
The afternoon weakness among treasuries came after the Treasury Department revealed its auction of $38 billion worth of three-year notes attracted slightly below average demand.
The three-year note auction drew a high yield of 1.567 percent and a bid-to-cover ratio of 2.45, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.49.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
Treasuries showed a lack of direction earlier in the day amid uncertainty about the impact of rising tensions between the U.S. and Iran following the U.S. airstrike that killed top Iranian military commander Qasem Soleimani.
Iran has vowed to take revenge against the U.S. for the killing of Soleimani, but the lack of an immediate response has offset some of the worries that sparked a jump in treasuries last Friday.
While traders generally seem optimistic that the war of words between Washington and Tehran will not escalate into a full-fledged military conflict, the uncertainty is keeping trading activity in check.
On the U.S. economic front, the Commerce Department released a report showing the U.S. trade deficit shrank to its smallest level in three years in the month of November.
The report said the trade deficit narrowed to $43.1 billion in November from a revised $46.9 billion in October. Economists had expected the deficit to narrow to $43.8 billion from the $47.2 billion originally reported for the previous month.
The narrower trade deficit came as the value of exports climbed by 0.7 percent to $208.6 billion, while the value of imports slumped by 1.0 percent to $251.7 billion.
A separate report from the Institute for Supply Management showed service sector activity in the U.S. grew at a faster than expected pace in the month of December.
The ISM said its non-manufacturing index climbed to 55.0 in December after dipping to 53.9 in November, with a reading above 50 indicating growth in the service sector. Economists had expected the index to inch up to 54.5.
“The non-manufacturing sector had an uptick in growth in December,” said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee.
“The respondents are positive about the potential resolution on tariffs,” he added. “Capacity constraints have eased a bit; however, respondents continue to have difficulty with labor resources.”
A report on private sector employment may attract some attention on Wednesday, while bond traders are also likely to keep an eye on the results of the Treasury Department’s auction of $24 billion worth of ten-year notes.
The material has been provided by InstaForex Company – www.instaforex.com