Longer-end Treasury yields slipped Wednesday after an auction of $41 billion in 10-year notes produced healthy demand but yields mostly remain near one month highs with signs U.S. inflation may be moderating but at a 29 year high.

What yields are doing

The 10-year Treasury note yield

was at 1.324%, compared with 1.342% at 3 p.m. Eastern Time on Tuesday. Yields for debt rise as prices fall.

The 30-year Treasury bond yields

1.990%, versus 1.984% a day ago.

The 2-year Treasury note

was yielding 0.221%, compared with 0.236% on Tuesday.

On Tuesday, the 10-year and 30-year Treasury yields had hit their highest yields since July 14, while the 2-year touched its highest since July 13, based on 3 p.m. levels, according to Dow Jones Market Data.

What’s driving the market?

A $41 billion auction in 10-year Treasury notes produced a bid-to-cover ratio that was the highest since May 2020, as indirect bidders took down 77.2% of the sale, according to Jefferies LLC economists Thomas Simons and Aneta Markowska. They said the results of that auction were “one for the record books.”

The auction reversed Wednesday’s earlier rise in the 10-year yield, which came after a Labor Department report showed the rate of inflation for the 12 months ended in July remaining at a 20-year high of 5.4% for the second straight month.

Meanwhile, the consumer price index climbed 0.5% on a month-over-month basis last month, but was down from 0.9% in June and matched the expectations of economists surveyed by The Wall Street Journal.

The closely watched measure of inflation that omits volatile food and energy — the so-called core price index — rose 0.3%, below expectations for a 0.4% gain, and the 12-month rate decelerated to 4.3% from 4.5%, which was a 29-year high.

Meanwhile, Kansas City Federal Reserve President Esther George said Wednesday the time has come to end the central bank’s bond-buying program. Her remarks follow those of Chicago Fed President Charles Evans, who said late Tuesday that he was not yet ready to support announcing a tapering of bond purchases in September, as some of his colleagues have argued for in recent days.

What analysts are saying

“The outstanding demand for the 10yr auction today reinforces our view that yields will fall in the coming weeks during August,” Tom di Galoma, managing director of rates trading at Seaport Global Holdings, said in a note. “The last weeks of August usually sees good demand for Treasury securities and we believe this August is no exception. The 10yr yield held our buy level of 1.40/1.35% and with the 30yr coming tomorrow will give investors another chance to buy a dip.”

“We expected that the recent volatility and the possibility that regular auction participants had been stopped out would lead to a sloppy bid and a tail,” Simons and Markowska of Jefferies wrote in a note. “Frankly, it is hard to be more wrong. We were expecting a similarly sloppy result for tomorrow’s bond auction, but clearly we need to reassess that view.”

“The more moderate inflation print may allow investors to feel comfortable buying the recent dip in Treasuries, particularly in the 5y part of the curve as there is little rush for the Fed to hike rates quickly,” TD Securities strategists Jim O’Sullivan, Oscar Munoz, and others wrote in a note. “We expect 5y TIPS BEs to remain elevated despite the weaker print as the carry profile for August and September remains extremely positive.”

“The July increases in the headline Consumer Price Index and the core CPI were comparatively tame considering what we’ve seen the past few months as the low bar of year-ago comparisons drops out,” Greg McBride, chief financial analyst at Bankrate.com, wrote in a note. “Even though the Federal Reserve’s preferred inflation metric is not the Consumer Price Index, don’t expect today’s numbers to quiet the calls for the Fed to dial back crisis-era actions for fear of stoking further price increases. The ‘transitory or sustained’ debate will nonetheless continue.”

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