Treasuries Move To The Upside As Powell Warns Of Headwinds

Trading 26 fév 2019 Donner votre avis

Extending the see-saw trend seen over the past few sessions, treasuries rebounded on Tuesday following the pullback seen on Monday.

Bond prices gave back ground after seeing initial strength but moved back to the upside in the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.7 basis points to 2.636 percent.

The rebound by treasuries came as Federal Reserve Chairman Jerome Powell delivered his semiannual monetary policy report to Congress, telling lawmakers the U.S. economy remains healthy but warning about potential headwinds.

Powell noted in prepared remarks before the Senate Banking Committee that the Fed has seen "some crosscurrents and conflicting signals" regarding current conditions and the economic outlook over the past few months.

The Fed Chief specifically pointed to volatility in the financial markets toward the end of 2018, calling financial conditions "less supportive of growth than they were earlier last year."

Powell also cited slowing economic growth in foreign countries, particularly China and Europe, as well was uncertainty about Brexit and ongoing trade talks between the U.S. and China.

"We will carefully monitor these issues as they evolve," Powell told the members of the Republican-controlled Senate committee.

Reflecting the uncertainty, Powell highlighted the Fed's decision at its January meeting to adopt a "patient approach" with regard to future interest rate hikes.

"Going forward, our policy decisions will continue to be data dependent and will take into account new information as economic conditions and the outlook evolve," he said.

Treasuries also reacted positively to the results of the Treasury Department's auction of $32 billion worth of seven-year notes, which attracted slightly above average demand.

The seven-year note auction drew a high yield of 2.538 percent and a bid-to-cover ratio of 2.60, while the ten previous seven-year note auctions had an average bid-to-cover ratio of 2.53.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold. Today's seven-year note auction came after the Treasury sold $40 billion worth of two-year notes and $41 billion worth of five-year notes on Monday.

On the U.S. economic front, a Commerce Department showing housing starts tumbled to their lowest level in over two years in December was offset by a Conference Board report showing a bigger than expected rebound in consumer confidence in February.

Powell's second day of testimony on Capitol Hill may attract attention on Wednesday along with reports on pending home sales and factory orders.

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