Treasuries showed a notable move to the downside during trading on Tuesday, extending the modest drop seen in the previous session.
Bond prices came under pressure early in the session and remained firmly negative throughout the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 3.6 basis points to 2.884 percent.
The weakness among treasuries came as traders continued to react to news of the preliminary trade agreement between the U.S. and Mexico.
President Donald Trump indicated the trade deal with Mexico is intended to replace the North American Free Trade Agreement but suggested Canada could be excluded from the new pact.
Treasury Secretary Steven Mnuchin told CNBC he remains hopeful a revamped trade deal will get done with Canada but said the U.S. is ready to go forward with the agreement with Mexico.
“I think our objective is to try to get Canada on board quickly,” Mnuchin said on CNBC’s “Squawk Box” on Tuesday. “This is a great deal for American workers.”
He added, “If you remember one thing, this deal is about more trade for U.S. companies and goods and services, and that’s what we’re focused on.”
Treasuries saw further downside following the release of a report from the Conference Board showing an unexpected improvement in consumer confidence in the month of August.
The Conference Board said its consumer confidence index surged up to 133.4 in August from an upwardly revised 127.9 in July. Economists had expected the index to dip to 126.8 from the 127.4 originally reported for the previous month.
With the unexpected increase, the consumer confidence index reached its highest level since hitting 135.8 in October of 2000.
Meanwhile, traders largely shrugged off the results of the Treasury Department’s auction of $37 billion worth of five-year notes, which attracted average demand.
The five-year note auction drew a high yield of 2.765 percent and a bid-to-cover ratio of 2.49, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.47.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
On Wednesday, the Treasury Department is due to finish up this week’s series of long-term securities auctions with the sale of $31 billion worth of seven-year notes.
A revised reading on second quarter GDP may also attract attention on Wednesday along with a report on pending home sales in July.
Bond trading could also be impacted by reaction to the results of the Treasury Department’s auction of $31 billion worth of seven-year notes.