Treasuries Finish Lower Ahead of Two-Year Auction

Also on the docket Thursday: the latest update on initial jobless claims

Treasuries finished lower on strength in equities and on portfolio adjusting before the end of the year. A record-sized auction of two-year notes set for Thursday is also keeping prices down. In general, treasuries are expected to trade sideways before the start of the new year as the Federal Reserve's interest rate policy is less clear after twelve cuts in 2001.

S&P MMS expects initial claims to rise 6,000 to the 390,000 level in the week ended Dec. 22. A number in line with this estimate would pull the four-week moving average 26,000 lower to the 412,000 level, the lowest level since the middle of September. This is likely to set the tone early, weighing on Treasuries and adding fuel to the recent equity rally, but traders will also be watching for the results of the Treasury's 2-year note auction.

In economic data Wednesday, an update on retail sales showed continued weakness. The Redbook Retail Sales Average dropped 4.5% in the three weeks ended Dec. 22 compared to the same period last month.

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