Treasuries Give Back Ground Following Last Week's Surge

Following the substantial rally seen in the previous week, treasuries gave back some ground during trading on Monday.

Bond prices saw initial strength but pulled back into negative territory and remained in the red for the rest of the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.6 basis points to 3.954 percent.

The pullback by treasuries may partly have reflected profit taking following last week’s surge, which drove the ten-year yield down to its lowest levels since late July.

Last week’s rally reflected optimism about the outlook for interest rates after the Federal Reserve’s latest projections hinted at three rate cuts next year.

However, several Fed officials have subsequently pushed back on investor hopes that rate cuts by the central bank are imminent.

Chicago Fed President Austan Goolsbee told CNBC’s “Squawk Box” he was confused by the reaction to the Fed announcement, which saw both stocks and bonds move sharply higher.

“It’s not what you say, or what the chair says. It’s what did they hear, and what did they want to hear,” Goolsbee said. “I was confused a bit — was the market just imputing, here’s what we want them to be saying?”

Nonetheless, CME Group’s FedWatch Tool still suggests there is a good chance the Fed will lower interest rates by a quarter point in March.

Later this week, the Commerce Department is due to release its report on personal income and spending in the month of November, which includes readings on inflation said to be preferred by the Fed.

The National Association of Home Builders released a report this morning showing homebuilder sentiment in the U.S. rebounded in December after falling for four consecutive months.

The report said the NAHB/Wells Fargo Housing Market Index climbed to 37 in December after falling to an eleven-month low of 34 in November. Economists had expected the index to rise to 36.

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