Bond Report: Bond yields hold steady after U.S. consumer confidence report misses expectations

What’s happening

• The yield on the 2-year Treasury
  TMUBMUSD02Y,
  3.142%
  was little changed at 3.126% versus 3.121% on Monday afternoon. Yields move in the opposite direction to prices.

• The yield on the 10-year Treasury
  TMUBMUSD10Y,
  3.228%
  inched up to 3.209% versus 3.193% on Monday.

• The yield on the 30-year Treasury
  TMUBMUSD30Y,
  3.345%
  edged up to 3.319% from 3.304% on Monday.

What’s driving markets

Economic data released on Tuesday showed that U.S. consumer confidence fell in June to 98.7 and missed the median forecast of economists surveyed by The Wall Street Journal. In addition, the S&P CoreLogic Case-Shiller 20-city index posted a 21.2% year-over-year gain in April, up slightly from 21.1% in the previous month. And the U.S. trade deficit in goods fell for a second month in a row after setting record, dropping 2.2% in May to $104.3 billion.

Yields have jumped this year in response to surging inflation and expectations of further Federal Reserve interest-rate hikes.

In an interview on CNBC Tuesday, New York Fed President John Williams said he expects the economy to slow a bit, but a recession can be avoided. Meanwhile, Ark Invest’s Cathie Woods told the network that she thinks the U.S. economy is already contracting.

A $40 billion auction of 7-year notes is scheduled for later in the day.

What analysts are saying

“Right now, uncertainty over factors such as how quickly inflation will fall, how resilient consumer spending will remain, and how committed the Fed will be to hiking rates in the face of slowing growth means there are multiple possible paths for the economy, with no one scenario clearly the most likely,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.

“Within fixed income, we advise moving up in quality. We now find agency mortgage-backed securities attractive, in addition to preferred securities,” Marcelli wrote in a note.