2018.12.1115:17:00UTC+00Treasuries Close Modestly Lower Following Choppy Trading Session

Treasuries fluctuated over the course of the trading session on Tuesday before ending the day modestly lower.

After seeing initial weakness, bond prices climbed back near the unchanged but pulled back in afternoon trading. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.3 basis points to 2.879 percent.

With the modest increase on the day, the ten-year yield climbed further off the more than three-month closing low set last Friday.

The afternoon pullback by treasuries came after the Treasury Department released the results of its auction of $38 billion worth of three-year notes, which attracted below average demand.

The three-year note auction drew a high yield of 2.748 percent and a bid-to-cover ratio of 2.59, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.73.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Renewed optimism about U.S.-China trade talks also reduced the appeal of treasuries after a telephone call between top officials from the world's two largest economies.

China's Commerce Ministry said Chinese Vice Premier Liu He spoke with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer.

"Both sides exchanged views on putting into effect the consensus reached by the two countries' leaders at their meeting, and pushing forward the timetable and roadmap for the next stage of economic and trade consultations work," the ministry said in a statement.

Indications the talks are moving forward has offset some of the skepticism about the potential for a trade deal after U.S. President Donald Trump and Chinese President Xi Jinping agreed to a 90-day trade truce earlier this month.

A report from Bloomberg News that China is moving toward cutting tariffs on imported U.S.-made cars added to the optimism.

Citing people familiar with the matter, Bloomberg said a proposal to reduce tariffs on cars made in the U.S. to 15 percent from the current 40 percent has been submitted to China's Cabinet.

Just after his meeting with Xi, Trump claimed in a post on Twitter that China had agreed to reduce and remove tariffs on cars coming into China from the U.S.

Meanwhile, traders largely shrugged off a report from the Labor Department unexpectedly showing a modest uptick in producer prices in the month of November.

The Labor Department said its producer price index for final demand inched up by 0.1 percent in November after climbing by 0.6 percent in October. Economists had expected prices to be unchanged.

Excluding food and energy prices, core producer prices rose by 0.3 percent in November following a 0.5 percent increase in October. Core prices had been expected to edge up by 0.1 percent.

On Wednesday, the Labor Department is scheduled to release a separate report on consumer prices in the month of November.

Consumer prices are expected to come in unchanged during the month, while core consumer prices are expected to rise by 0.2 percent.

Bond traders are also likely to keep an eye on the results of the Treasury Department's auction of $24 billion worth of ten-year notes.