Treasury yields held their ground Tuesday as the bond market has digested some $78 billion in bond auctions over the past 24 hours, suggesting appetite for government paper remains strong as a Federal Reserve decision on Wednesday loomed.
Investors also looked past a key inflation indicator, which came in as expected.
What are Treasurys doing?
The 10-year Treasury note yield
TMUBMUSD10Y, +0.25%
was flat at 2.959%. The 2-year note yield
TMUBMUSD02Y, +1.31%
added 1 basis point to 2.539%, while the 30-year bond yield
TMUBMUSD30Y, +0.04%
fell 0.7 basis point to 3.093%.
By one measure, the yield curve also flattened. The spread between the 2-year note and the 30-year bond, one gauge of the curve’s slope, narrowed to 55 basis points, its narrowest levels since Aug. 2007. A flattening curve is seen as a sign that the bond market is expecting an economic slowdown.
Bond prices move in the opposite direction of yields.
What’s driving markets?
Bond traders looked past May’s consumer-price index data. Consumer prices rose 0.2%, and the core gauge, stripping out for food and energy prices, increased by 0.2%, in line with expectations from economists surveyed by Econoday. A solid inflation report will keep the Federal Reserve on track to raise rates a two additional times this year, but may not be enough to push investors to price in one more hike on top of the consensus of three in 2018, market participants said.
Investors also took down the last a trio of bond auctions after $14 billion of 30-year paper went on the block in the afternoon. On Monday, the government sold $32 billion of three-year notes, and a $22 billion offering of 10-year paper.
With yields relatively unchanged amid the issuance, investors said the absence of any indigestion ahead of a key Fed meeting on Wednesday was a bullish sign. If the central bank issues a hawkish policy stance, bonds bought before the meeting will lose their value, suggesting market participants aren’t expecting a surprise from the central bank.
The Fed is expected to raise the fed-funds rate by a quarter percentage point to a range of 1.75% to 2.00%. Market participants will chiefly focus on changes to the policy statement, the projections for interest rates, and Fed Chairman Jerome Powell’s press conference.
See: 5 challenging questions Fed chief Powell may encounter
Meanwhile, President Donald Trump met North Korean leader Kim Jong Un to move toward the denuclearization of the Korean Peninsula. Trump said the U.S. would suspend its war games, but that sanctions would stay in place. Some market participants said the lack of the details would, however, keep investors from making trades based on an easing of tensions between the two nations.
Read: North Korea summit: Trump-Kim deal criticized for lack of nuclear detail
Also check out: How investors might best play the ‘long journey’ to denuking North Korea
What did market participants say?
“The market is now focused on the FOMC rate decision tomorrow so the appetite for risk is quite low at the moment. Futures and cash trading is well below 50% of normal volume. My view is the Fed will be slightly hawkish given that Italy’s issues are behind them and the Singapore Summit went very well. The economy is close to 4 to 4.5% GDP and with that kind of momentum look for the Fed to raise rates tomorrow, on September 26th, and possibly on December 19th,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.
Source : MTV
