Treasury yields were little changed Tuesday, following a rise in the previous session, as investors awaited U.S. consumer inflation data which is expected to see another fall in prices in April
hat are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 0.715% fell 1.6 basis points to 0.710%, while the 2-year note rate TMUBMUSD02Y, 0.180% held its ground at 0.179%. The 30-year bond yield TMUBMUSD30Y, 1.417% slipped 3.1 basis points to 1.413%.
What’s driving Treasurys?
The U.S. consumer price index is expected to confirm the near-term deflationary pressures amid the COVID-19 pandemic, as Americans curbed spending and stayed home. This could create a backdrop favorable for bond investors fearful of the corrosive impact of inflation on interest income.
Consumer prices are expected to tumble 0.8% in April, largely due to a sharp slump in energy values after U.S. benchmark crude futures dipped below $0 for the first time in history in May. The more stable core gauge that strips out energy and food prices is forecast to fall by 0.2%.
Still, investors say the combination of government spending, monetary stimulus, along with the steady re-opening of the U.S. economy could give a lift to price pressures. At the same time, few see inflation returning back to the Federal Reserve’s target of 2% any time soon.
Perhaps more importantly, the U.S. Treasury will hold an auction for $32 billion of 10-year notes in Tuesday afternoon. The sale could weigh on trading for government paper, but analysts point out the benchmark yield had already risen on Monday as broker-dealers anticipated and made room for the influx of new debt.
Traders will see a parade of speeches from senior Federal Reserve officials on Tuesday. St. Louis Fed President James Bullard, Philadelphia Fed President Patrick Harker, Fed vice chairman of banking supervision Randal Quarles and Cleveland Fed President Loretta Mester will speak throughout the day.
See: Fed stands behind U.S. banking sector no matter what the coronavirus demands, Quarles says
What did market participants’ say?
“We’ve lamented the stubborn range which has confined US rates since mid-March and one of this week’s lessons appears like to be that even the hefty dose of larger than anticipated long-end auctions is insufficient to redefine the trading parameters,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, in a note.
