Bond Prices Give Back Recent Gains with Rate Hikes Ahead

US Treasury prices on Wednesday gave up Tuesday’s gains, working their way lower throughout the session with the longer end leading as trade tensions ebbed, aiding in a global stock advance. Federal Reserve Chair Jerome Powell spoke early, offering an upbeat assessment on the economy and that the case for the Fed to continue to gradually increase rates was strong.

The 30-year yield settled near 3.063% versus a late 3.0664% high, 3.0147% low and 3.028% close Tuesday. The 10-year yield went out near 2.925% from a late 2.93% high, 2.8843% low and 2.893% close. The five-year yield settled near 2.795% versus a 2.7992% high, 2.7532% low and 2.769% Tuesday. The two-year yield went out near 2.565% from a late 2.5784% high, 2.5286% low and 2.545% close.

The curve trade settled steeper with the two- and 10-year yield gap widened to near 36 from 34.8 Tuesday while the five- and 30-year yield spread unwound early flatteners to near 26.8 from 25.9.

Speaking at a central bank event on monetary policies, Powell noted that unemployment remains, and is expected to remain, low while inflation is heading toward the Fed’s 2% target. He indicated that moderate wage growth suggests the labor market is not too tight. He did add that changing trade and tariff policies could alter policymakers’ economic outlooks.

Late in the session, Mick Mulvaney, Office of Management and Budget director, told a Bloomberg Fintech event that he was not concerned that China could threaten to stop buying, or begin selling, their US Treasury debt holdings, indicating the threat itself was “more powerful” than actual selling.

Traders were again eyeing the 2.94% level on the 10-year yield as the market gave up recent ground, while watching a short-term retracement level near 2.85%.

A Batch of new corporate issues included a $16 billion Walmart nine-tranche offering along with a run of assorted five- through 30-year sales.

Data saw May existing home sales dip to 5.430 million versus the 5.500 million expected form a lower 5.450 million in April. The Q1 current account balance widened to -$124.1 billion, versus the -$129.3 billion expected against -$116.12 billion in Q4 and Q3’s -$103.4 billion, after revisions back through 2010.

Thursday’s calendar kicks things up a bit with the initial weekly jobless claims and the June Philadelphia Fed manufacturing survey at 8:30 am ET with the April Federal Housing Finance Agency House Price Index at 9 am and the May leading economic indicators at 10 am.

At 11 am Treasury will offer detail on next week’s two-, five- and seven-year note auctions (June 26, 27 and 28, respectively) as well as for Monday’s three- and six-month bills and Wednesday’s reopened two-year floating-rate note sales.

Minneapolis Fed President Neel Kashkari is scheduled to speak at a local commerce event at 9 am with a follow up Q&A.

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