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U.S. government bond yields drifted lower Tuesday morning as investors watched for new evidence of inflation, ahead of policy meetings of the European Central Bank on Thursday and the Federal Reserve next week.
A report from CNBC said the U.S. central bank may begin to discuss tapering at its coming gathering, setting the table for an eventual rollback of its $120 billion-a-month asset-purchase program.
How Treasurys are performing
-
The 10-year Treasury note yield
TMUBMUSD10Y,
1.528%
was at 1.558%, gave up 1.2 basis points, based on 3 p.m. Eastern Time levels on Monday. -
The 30-year Treasury
TMUBMUSD30Y,
2.207% ,
the long bond, was yielding 2.231, shed 2 basis points. -
The 2-year Treasury note rate
TMUBMUSD02Y,
0.148%
was at 0.157%, down 0.2 basis point.
Fixed-income drivers
U.S. Treasuries have been trading in a narrow range since April and look unlikely to breakout in the near term, outside of further clarity on the path of inflation as the economy picks up after the COVID pandemic,
Equities also have seen rangebound trading in recent weeks, hovering near record highs after a surge to new records amid effective vaccine rollouts and the easing of lockdown protocols.
The current listlessness suggests that the overall market is uncertain about the next phase of the economic recovery. Concerns about inflation are a major factor in recent trading because inflation can erode a bond’s fixed value.
The release Thursday of the U.S. May consumer-price index is shaping up to be the main data event of the week. A hotter-than-expected read on the April CPI, which rose 4.2% year over year, temporarily rattled markets last month.
CNBC reported that the Federal Open Market Committee may discuss tapering of bond buying next week, with an eye toward commencing reductions in the FOMC’s asset portfolio at the end of 2021 or early next year.
In U.S. economic reports, investors will be watching for international trade data at 8.30 a.m., with the deficit expected to narrow to $69 billion after the U.S. economy saw a deficit of $74.4 billion in March. Data on April job openings at 10 a.m. also will be closely watched amid concerns about the pace of recovery in the labor market.
Investors are also watching for a 3-year auction of debt at 1 p.m. Eastern Time.
What strategists are saying
“The ongoing post-Covid economic burst has been priced in, and any additional increase in rates has been delayed by expectations that the current rise in inflation will prove transitory, and the Fed will be able to sustain its dovish stance for longer,” wrote John Canavan, lead analyst at Oxford Economics in a research report.
