After failing to sustain an initial move to the upside, treasuries gave back ground over the course of the trading session on Tuesday.
Bond prices pulled back off their early highs and spent the remainder of the session lingering near the unchanged line. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day unchanged at 3.521 percent.
Treasuries initially benefited from their appeal as a safe haven amid concerns about the global economy following disappointing Chinese trade data.
Buying interest waned shortly after the start of trading, however, as traders seemed reluctant to make significant bets ahead of the release of key inflation data in the coming days.
The reports on consumer and producer price inflation, which are due to be released on Wednesday and Thursday, respectively, could have a significant impact on the outlook for interest rates.
Ahead of the data, CME Group’s FedWatch Tool is currently indicating a 78.8 percent chance the Federal Reserve will leave interest rates unchanged at its next meeting in June.
“The April CPI report is going to remind everyone that inflation is staying sticky,” said Edward Moya, senior market analyst at OANDA. “The Fed won’t be raising rates on a hot report, but it will justify calls that rates will stay higher for longer.”
Meanwhile, bond traders shrugged off the results of the Treasury Department’s auction of $40 billion worth of three-year notes, which attracted above average demand.
The three-year note auction drew a high yield of 3.695 percent and a bid-to-cover ratio of 2.93, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.56.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
Trading on Wednesday is likely to be driven by reaction to the Labor Department’s report on consumer price inflation in the month of April.
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