U.S. Treasurys Higher in Reversal of Sell-Off

U.S. Treasurys prices were modestly higher in extremely quiet trading, in a partial reversal of Friday's sell-off.

With very little economic data to speak of, "activity is somewhat subdued" and "liquidity is definitely impaired," said Jason Evans, head of government trading for Deutsche Bank.

The price of the Treasury's 10-year note was up around midday, while its yield fell from Friday's level, when trading desks closed early ahead of the Christmas holiday. Prices and yields move in opposite directions.

A manufacturing and economic activity report from the Federal Reserve Bank of Richmond released Tuesday morning came in at negative 6 versus November's 7. However, the data failed to move the market in any noticeable way.

The real surprise in the market was Friday's sell-off, Evans said. Friday's data _ and in particular the core personal consumption expenditures price index, a key measure of inflation _ were on the tamer side. Compared with a year earlier, the core PCE price index rose 2.2% in November from a year earlier, down from a 2.4% year-over-year climb in October.

However, despite what should have been bond-friendly data, the Treasurys market sold off heavily, largely on profit-taking.

The sell-off Friday "occurred on relatively light volume," Evans said, "and the market is ... in recovery."

Hedge funds were in the market buying 10-year Treasurys Tuesday, with good buying by money managers in five-year Treasurys as well, according to RBS Greenwich Capital.

As for the remainder of the week, "we are rather neutral," RBS Greenwich noted in market commentary.