Treasuries Give Back Ground Following Recent Upward Trend

(RTTNews) - After trending higher over the past few sessions, treasuries gave back ground over the course of the trading day on Friday.

Bond prices drifted steadily lower in morning trading before moving roughly sideways in the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 3.1 basis points to 4.119 percent.

The pullback by treasuries may partly have reflected profit taking following the strength seen for much of the week, which saw the ten-year yield slump by nearly 10 basis points compared to last Friday.

Treasuries had been benefitting from their appeal as a safe haven amid the ongoing U.S. government shutdown.

The recent strength among treasuries also came amid increasing confidence the Federal Reserve will continue to lower interest rates in the coming months.

While the shutdown has led to the indefinite delay of key U.S. economic data, including this morning's closely watched monthly jobs report, data from non-government sources has shown signs of weakness.

After payroll processor ADP released a report earlier this week showing an unexpected decrease in private sector employment, the Institute for Supply Management released a report this morning showing a bigger than expected decline by its reading on service sector activity.

The ISM said its services PMI fell to 50.0 in September from 52.0 in August, with a reading of 50.0 serving as the breakeven point between expansion and contraction. Economists had expected the index to edge down to 51.7.

CME Group's FedWatch Tool is currently indicating a 96.7 percent chance the Fed will cut rates by a quarter point in October and an 84.9 percent chance of another quarter point rate cut in December.

Developments in Washington may impact trading next week, while traders are also likely to keep an eye on a preliminary reading on consumer sentiment in October as well as the minutes of the latest Federal Reserve meeting.