FX.co ★ Treasuries Recover From Early Weakness, Close Slightly Higher

Treasuries have been on a downward trend recently, but took a significant turn on Wednesday with bonds showing a considerable rebound. Despite starting off low, bond prices bounced back, closing the day with slight increases. Consequently, the yield on the key ten-year note dropped by 1.0 basis point to 4.355 percent.

In the early trading hours, this yield had jumped to an all-time high of 4.429 percent in over four months. The resurgence in the treasury market happened after a report from the Institute for Supply Management (ISM) indicated a surprising deceleration in U.S. service sector growth in March.

According to the ISM, its services Purchasing Managers' Index (PMI) dropped to 51.4 in March from 52.6 in February. Even though a score above 50 still reflects growth, economists had anticipated an increase to 52.7.

Interestingly, the report also revealed a significant slowing down in price growth within the sector, with the prices index plummeting to 53.4 in March from 58.6 in February. This is the lowest the index has been since March 2020.

This information has allayed recent apprehensions about the direction of interest rates, which have added to the bond market's vulnerability. Fears that the Federal Reserve might hesitate in cutting interest rates also played a part in the initial treasury market slump. These concerns came after payroll processor ADP reported a larger-than-expected increase in private sector job growth in March.

ADP's report indicated that private sector jobs had increased by 184,000 in March, a significant rise from the upwardly revised 155,000 jobs in February. Economists had projected an increase of 148,000 jobs, compared to the newly reported addition of 140,000 jobs in the previous month.

In a speech at Stanford University, Federal Reserve Chairman Jerome Powell reiterated that the central bank is not in a rush to cut interest rates. He noted that inflation data from January and February warranted caution from the Fed, adding that it was too early to determine if recent readings signified anything significant.

He remarked, "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent." Nevertheless, with the economy's strength and positive progress on inflation, Powell acknowledged there is no hurry to adjust policy and that incoming data will guide their decisions.

Reports on weekly jobless claims and the U.S trade deficit will likely gain attention on Thursday. However, trading activity is expected to be somewhat restrained, given the upcoming release of the more closely monitored monthly jobs report on Friday.